**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





___________________




**FORM
      10-Q**


___________________




**(Mark
      One)**





**[X]**  **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the quarterly period ended June 30, 2006**





**OR**





**[   ]**  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the transition period from ____________ to ____________ .**





**Commission
      File No.: 0-30849**





**WEBEX
      COMMUNICATIONS, INC**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
            **77-0548319****(State
                or other jurisdiction of**
            **(I.R.S.
                Employer****incorporation
                or organization)**
            **Identification
                Number)**





**3979
      Freedom Circle**


**Santa
      Clara, California 95054**


**(Address
      of principal executive offices)**





**Telephone:
      (408) 435-7000**


**(Registrant's
      telephone number, including area code)**





Indicate
      by check mark whether the registrant (l) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      at least the past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer x  Accelerated
      filer o Non-accelerated
      filer o





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Excha nge
      Act).
      Yes  ̈ No x





The
      number of shares of WebEx common stock outstanding as of August 1, 2006 was
      48,324,170 shares.










**WEBEX
      COMMUNICATIONS, INC.**


**QUARTERLY
      REPORT ON FORM 10-Q FOR THE PERIOD ENDED**


**JUNE
      30, 2006**





**TABLE
      OF CONTENTS**





**Page
                No.****PART
                I. FINANCIAL INFORMATION****Item
                1**.Financial StatementsCondensed
                Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and as
                of
                December 31, 2005 (Audited)
            3Condensed
                Consolidated Statements of Income for the three and six months ended
                June
                30, 2006 and 2005 (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the six months ended June
                30,
                2006 and 2005 (Unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (Unaudited)
            6**Item
                2**.Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17**Item
                3**.Quantitative
                and Qualitative Disclosures About Market Risk
            30**Item
                4.**Controls and Procedures
            31**PART
                II. OTHER INFORMATION****Item
                1**.Legal Proceedings
            32**Item
                1A**.
                Risk Factors
            32**Item
                2**.Unregistered Sales of Equity Securities and Use of Proceeds
            47**Item
                4**.Submission of Matters to a Vote of Security Holders
            47**Item
                6**.Exhibits
            48**Signatures**
            49**Exhibit
                Index**
            50








**PART
      I - FINANCIAL INFORMATION**


**Item
      1.** ***Financial
      Statements***


**WEBEX
      COMMUNICATIONS, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(In
      thousands, except par value)**








ASSETS





**June
                  30,**
                **2006**
            
            
            **December
                31,**
              **2005****(Unaudited)**Current
                assets:Cash
                and cash equivalents
            
            $
            40,229
            
            $
            18,101Short-term
                investments
            
            
            228,629
            
            
            179,110Accounts
                receivable, net of allowances of $8,507 and $7,131,
                respectively
            
            
            56,518
            
            
            51,231Prepaid
                expenses and other current assets
            
            
            7,322
            
            
            7,231Prepaid
                income taxes
            
            
            1,056
            
            
            —Deferred
                tax assets
            
            
            11,355
            
            
            6,326Total
                current assets
            
            
            345,109
            
            
            261,999Property
                and equipment, net
            
            
            49,701
            
            
            51,592Goodwill
            
            
            26,617
            
            
            28,224Intangible
                assets, net
            
            
            14,687
            
            
            16,453Deferred
                tax assets
            
            
            6,528
            
            
            2,930Other
                non-current assets
            
            
            1,309
            
            
            1,579Total
                assets
            
            $
            443,951
            
            $
            362,777LIABILITIES
                AND STOCKHOLDERS’ EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            4,858
            
            $
            9,011Accrued
                liabilities
            
            
            32,343
            
            
            24,737Deferred
                revenue
            
            
            14,997
            
            
            12,652Income
                tax payable
            
            
            —
            
            
            4,348Total
                liabilities
            
            
            52,198
            
            
            50,748Commitments
                and contingenciesStockholders'
                equity:Preferred
                stock, $0.001 par value (5,000 shares authorized; no shares issued
              or
                outstanding)
            
            
            —
            
            
            —Common
                stock, $0.001 par value (250,000 shares authorized; 48,222 and 46,143
                shares issued and outstanding, respectively)
            
            
            48
            
            
            46Additional
                paid-in capital
            
            
            317,480
            
            
            258,002Accumulated
                other comprehensive income
            
            
            2,495
            
            
            2,022Accumulated
                earnings
            
            
            71,730
            
            
            51,959Total
                stockholders' equity
            
            
            391,753
            
            
            312,029Total
                liabilities and stockholders' equity
            
            $
            443,951
            
            $
            362,777





See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**(In
      thousands, except per share data; unaudited** )





**Three
                  months ended**
                **June
                  30,**
              **Six
                  months ended**
                **June
                  30,**
 **2006**
              
              
              **2005**
              
              
              **2006**
              
              
              **2005**Net
                  revenues
              
              $
              92,862
              
              $
              75,329
              
              $
              181,326
              
              $
              146,183Cost
                  of revenues(1)
              
              
              17,653
              
              
              12,804
              
              
              33,624
              
              
              24,661Gross
                  profit
              
              
              75,209
              
              
              62,525
              
              
              147,702
              
              
              121,522Operating
                  expenses:Sales
                  and marketing(1)
              
              
              34,610
              
              
              24,745
              
              
              69,059
              
              
              48,848Research
                  and development(1)
              
              
              13.296
              
              
              10,982
              
              
              26,802
              
              
              21,048General
                  and administrative(1)
              
              
              9,374
              
              
              5,299
              
              
              18,948
              
              
              11,082Total
                  operating expenses
              
              
              57,280
              
              
              41,026
              
              
              114,809
              
              
              80,978Operating
                  income
              
              
              17,929
              
              
              21,499
              
              
              32,893
              
              
              40,544Interest
                  and other income, net
              
              
              2,081
              
              
              1,502
              
              
              3,816
              
              
              3,239Income
                  before income taxes
              
              
              20,010
              
              
              23,001
              
              
              36,709
              
              
              43,783Provision
                  for income taxes
              
              
              9,290
              
              
              9,121
              
              
              16,938
              
              
              17,053Net
                  income
              
              $
              10,720
              
              $
              13,880
              
              $
              19,771
              
              $
              26,730Net
                  income per share:Basic
              
              $
              0.22
              
              $
              0.31
              
              $
              0.42
              
              $
              0.59Diluted
              
              $
              0.22
              
              $
              0.29
              
              $
              0.40
              
              $
              0.57Weighted
                  average shares used to compute net income per share:Basic
              
              
              47,843
              
              
              45,479
              
              
              47,245
              
              
              45,223Diluted
              
              
              49,739
              
              
              47,518
              
              
              48,935
              
              
              47,183












































(1) Costs
      and
      expenses for the three and six months ended June 30, 2006 include SFAS 123R
      stock-based compensation
      expense.


See
      Note
      2 to the condensed consolidated financial statements for additional information.














See
      accompanying notes to condensed consolidated financial
      statements.





**WEBEX
      COMMUNICATIONS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(In
      thousands; unaudited)**




**Six
                  months ended**
                **June
                  30,****2006**
              
              
              **2005**Cash
                  flows from operating activities:Net
                  income
              
              $
              19,771
              
              $
              26,730Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provisions
                  for doubtful accounts and sales reserve
              
              
              10,977
              
              
              6,003Depreciation
                  and amortization
              
              
              10,425
              
              
              7,252Loss
                  from disposal of assets
              
              
              72
              
              
              241Deferred
                  income taxes
              
              
              (7,020
              )
              
              777Tax
                  benefits of stock plans
              
              
              9,407
              
              
              7,460Excess
                  tax benefits from stock-based compensation
              
              
              (3,669
              )
              
              —Stock-based
                  compensation
              
              
              12,592
              
              
              6Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (16,264
              )
              
              (14,551
              )Prepaid
                  expenses and other current assets
              
              
              (91
              )
              
              (370
              )Other
                  non-current assets
              
              
              270
              
              
              137Accounts
                  payable
              
              
              (4,153
              )
              
              (2,927
              )Accrued
                  liabilities
              
              
              7,606
              
              
              (557
              )Income
                  tax payable
              
              
              (5,404
              )
              
              3,838Deferred
                  revenue
              
              
              2,345
              
              
              1,231Other
              
              
              1,229
              
              
              211Net
                  cash provided by operating activities
              
              
              38,093
              
              
              35,481Cash
                  flows from investing activities:Purchases
                  of property and equipment
              
              
              (6,840
              )
              
              (7,215
              )Purchases
                  of available-for-sale securities
              
              
              (97,317
              )
              
              (107,778
              )Maturities
                  and sales of available-for-sale securities
              
              
              47,042
              
              
              46,790Net
                  cash used in investing activities
              
              
              (57,115
              )
              
              (68,203
              )Cash
                  flows from financing activities:Net
                  proceeds from issuances of common stock
              
              
              37,481
              
              
              19,478Excess
                  tax benefits from stock-based compensation
              
              
              3,669
              
              
              —Repurchase
                  of common stock
              
              
              —
              
              
              (12,046
              )Net
                  cash provided by financing activities
              
              
              41,150
              
              
              7,432Increase
                  (decrease) in cash and cash equivalents
              
              
              22,128
              
              
              (25,290
              )Cash
                  and cash equivalents at beginning of the period
              
              
              18,101
              
              
              80,442Cash
                  and cash equivalents at end of the period
              
              $
              40,229
              
              $
              55,152Supplemental
                  disclosures of non-cash investing and financing
                  activities:Adjustments
                  recorded in conjunction with acquisitions
              
              $
              (1,607
              )
              $
              462Capitalization
                  of lease incentives
              
              $
              —
              
              $
              2,295Cash
                  paid for:Income
                  taxes
              
              $
              19,828
              
              $
              4,879





See
      accompanying notes to condensed consolidated financial statements.


**WEBEX
      COMMUNICATIONS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**Note
      1: Basis of Presentation and Significant Accounting
      Policies**





The
      accompanying condensed consolidated financial statements of WebEx Communications
      (the “Company” or “WebEx”) as of June 30, 2006 and for the three and six months
      ended June 30, 2006 and 2005 are unaudited and in the opinion of management
      have
      been prepared in accordance with the rules and regulations of the Securities
      and
      Exchange Commission. Certain information and footnote disclosures normally
      included in consolidated financial statements prepared in accordance with
      generally accepted accounting principles have been condensed or omitted in
      accordance with such rules and regulations. In the opinion of management, the
      accompanying unaudited financial statements reflect all adjustments, consisting
      only of normal recurring adjustments, necessary to present fairly the financial
      position of the Company, and its results of operations and cash flows. These
      financial statements should be read in conjunction with the Company's audited
      consolidated financial statements and notes thereto as of and for the year
      ended
      December 31, 2005, included in the Company's Form 10-K filed with the Securities
      and Exchange Commission on March 15, 2006.




Certain
      reclassifications have been made to prior period amounts to conform to current
      period presentation. The Company reclassified $50.3 million of variable rate
      demand notes, which had been previously included in the condensed consolidated
      balance sheet caption “cash and cash equivalents” as of December 31, 2005, to
      the caption “short-term investments”. In addition, WebEx revised the
      presentation of the condensed consolidated statement of cash flows for the
      six
      months ended June 30, 2005 to reflect the gross purchases and sales of variable
      rate demand notes within cash flows used in investing activities. This
      reclassification resulted in decreased cash flows from investing activities
      of
      $27.0 million for the six months ended June 30, 2005. Stock compensation expense
      for the three and six months ended June 30, 2005 has been reclassified to the
      general and administrative operating expense category, which was previously
      classified as a single line item within the statements of income.





The
      results of operations for the three and six months ended June 30, 2006 are
      not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2006 or any other future period, and the Company makes no
      representations related thereto. The condensed consolidated financial statements
      include the accounts of WebEx and its wholly owned subsidiaries. All significant
      intercompany accounts and transactions have been eliminated in consolidation.








***Revenue
      Recognition***




Revenue
      is derived from the sale of web collaboration services. Web collaboration
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with resellers, who in turn sell the services to
      customers. The Company sells web collaboration services directly to customers
      through service subscriptions or similar agreements and pay-per-use
      arrangements. Under these arrangements, customers typically access the
      application hosted on WebEx servers using a standard web browser. Subscription
      arrangements include monthly subscriber user fees, user set-up fees and
      training. The subscription arrangements are considered service arrangements
      in
      accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-3, *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware* ,
      and
      with multiple deliverables under EITF 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables.* In
      addition, because the Company provides its applications as a service, the
      Company follows the provisions of Securities and Exchange Commission Staff
      Accounting Bulletin (“SAB”) No. 104, *Revenue
      Recognition* .
      Under
      EITF 00-21, all deliverables are considered one unit of accounting. During
      the
      initial term of an agreement, the Company may provide technical consulting
      services such as training, web-page design and custom set-up services.
      WebEx considers all such deliverables to be combined with service revenues
      into
      one unit of accounting, as individual delivered items do not have stand-alone
      value to the customer; therefore, such revenue is recognized ratably (i.e.
      straight-line) over the initial term of the contract.





Committed and
      fixed fee subscription service revenue is recognized ratably (i.e.
      straight-line) over the current term of the contract. The Company recently
      began to offer consulting services to train customers how to use WebEx’s web
      collaboration services to improve sales, marketing, training, and other business
      activities.  These consulting services are recognized upon delivery of
      the service as prescribed in SAB No. 104.





Some
      minute-based subscriptions involve a quarterly, semi-annual or annual rather
      than monthly commitment by the customer. In these cases, all
      monthly billing is in arrears and monthly revenue is recognized based on actual
      usage during the month. If, following the last month billed, aggregate actual
      usage is less than the subscription amount, then in addition to actual usage
      for
      the





final
      month, revenue is recognized for the remaining amount of the contractual
      commitment not previously billed. In
      addition to committed and flat-rate or subscription service revenue, WebEx
      derives revenue from pay-per-use services, usage in excess of commitments and
      other usage-based charges that are recognized as such services are provided.
      WebEx refers to these forms of revenue as uncommitted revenue.




The
      Company also enters into reselling arrangements with resellers, which purchase
      and resell the Company’s services on a discounted or pay-per-use basis. In such
      cases, revenue
      is recognized based on net amounts charged to the reseller. Revenue
      under these arrangements is derived from services provided to end-users and
      is
      recognized over the service period provided that evidence of the arrangement
      exists, the fee is fixed or determinable and collectibility is reasonably
      assured. Initial set up fees received in connection with these arrangements
      are
      recognized ratably (i.e. straight-line) over the initial term of the contract.
      During the initial term, the Company provides training services, web-page design
      and set-up services. Service fees are recognized as the services are provided
      for pay-per-use service arrangements and ratably (i.e. straight-line) over
      the
      service period for services provided on a subscription basis through the
      reseller. In a very small number of cases the Company’s reseller arrangements
      may require guaranteed minimum revenue commitments that are billed in advance
      to
      the reseller. Advance payments received from resellers are deferred until the
      related services are provided or until otherwise earned by WebEx. When the
      reseller bills the end-user, WebEx sells the services on a discounted basis
      to
      the reseller, which in turn marks up the price and sells the services to the
      end-user.





In
      a
      small minority of cases, the Company enters into another type of distribution
      arrangement--known as a referral arrangement--in which a third party refers
      a
      potential customer to WebEx’s direct sales force, which in turn seeks to enter
      into a contract directly with the potential customer. In these situations, WebEx
      bills the end-user directly and WebEx pays a percentage of the proceeds
      generated from the sale of WebEx services to the third party. In these cases
      revenue is recognized based on amounts charged to the end-user, and amounts
      paid
      to the third party are recorded as sales and marketing expense.




Persuasive
      evidence for each arrangement is represented by a binding contract. The fee
      is
      considered fixed or determinable if it is not subject to refund or adjustment.
      Collectibility is considered reasonably assured if WebEx expects that the
      customer will be able to pay amounts under the arrangement as they become due.
      Collectibility of guaranteed minimum revenue commitments by resellers is not
      reasonably assured; thus, revenue from guaranteed minimum commitments is
      deferred until services are provided to an end-user customer or until collected
      from the reseller and forfeited at the end of the commitment period.




Deferred
      revenue includes amounts billed to customers for which revenue has not been
      recognized and generally results from the following: (1) unearned portion of
      monthly billed subscription service fees; (2) unearned portion of annual or
      other period billed subscription service fees; (3) deferred set-up fees;
      and (4) advances received from resellers under revenue sharing arrangements.





As
      of
      June 30, 2006 and December 31, 2005, accounts receivable includes receivables
      of
      $7.7 million and $6.4 million respectively, for unbilled per-minute-based
      charges that occurred during the final month of the quarter.





***Stock-Based
      Compensation***





Effective
      January 1, 2006, WebEx adopted the fair value recognition provisions of
      Statement of Financial Accounting Standards ("SFAS") No. 123 (revised
      2004), *Share-Based
      Payment* ("SFAS 123R"), using the modified prospective transition method and
      therefore has not restated results for prior periods. Under this transition
      method, stock-based compensation expense for the three and six months ended
      June
      30, 2006 includes compensation expense for all stock-based compensation awards,
      including employee stock options and employee stock purchases related to the
      Employee Stock Purchase Plan granted prior to, but not yet vested as of
      January 1, 2006, based on the grant date fair value estimated in accordance
      with the original provision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* ("SFAS 123"). Stock-based compensation expense for all stock-based
      compensation awards granted after January 1, 2006 is based on the
      grant-date fair value estimated in accordance with the provisions of
      SFAS 123R.





In
      conjunction with the adoption of SFAS 123R, the Company changed its method
      of
      attributing the value of stock-based compensation to expense from the
      accelerated approach to the straight-line method. Compensation expense for
      all
      share-based payment awards prior to January 1, 2006 will continue to be
      recognized using the accelerated approach while compensation expense for all
      share-based payment awards granted on or subsequent to January 1, 2006 is
      recognized using the straight-line method. As stock-based compensation expense
      recognized in the Condensed Consolidated Statements of Income for the three
      and
      six months ended June 30, 2006 is based on awards ultimately expected to vest,
      it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures
      to
      be estimated at the time of grant and revised, if necessary, in subsequent
      periods if actual forfeitures differ from those estimates.










Prior
      to
      the adoption of SFAS 123R, WebEx recognized stock-based compensation
      expense in accordance with Accounting Principles Board ("APB") Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* ("APB 25"). In March 2005, the Securities and Exchange Commission (the
      "SEC") issued Staff Accounting Bulletin No. 107 ("SAB 107") regarding
      the SEC's interpretation of SFAS 123R and the valuation of share-based
      payments for public companies. WebEx has applied the provisions of SAB 107
      in its adoption of SFAS 123R. See Note 2 to the Condensed Consolidated
      Financial Statements for a further discussion on stock-based
      compensation.





***Recent
      Accounting Pronouncements***





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement
      No. 109* (“FIN
      48”). FIN 48 prescribes a recognition threshold and measurement attribute for
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return, and also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN 48 is effective for the Company
      beginning in the first quarter of 2007. The Company is in the process of
      determining the effect, if any, the adoption of FIN 48 will have on its
      financial statements.





**Note
      2: Employee Stock Benefit Plans and Stock-Based
      Compensation**




***Stock
      Plans***




The
      Company has granted stock options to employees, directors and consultants under
      the 1998 Stock Option Plan and the 2000 Stock Incentive Plan. In addition,
      beginning in the second quarter of 2006, the Company also began to issue
      restricted stock units as well as stock settled stock appreciation rights as
      allowed under the 2000 Stock Incentive Plan. Under the 1998 Stock Option Plan
      and the 2000 Stock Incentive Plan, the Company has authorized a total of
      26,936,769 shares available for grant. Grants to employees under these plans
      generally expire after 10 years or earlier in the case of termination or death.
      Vesting terms under these plans are generally over four years. As of June 30,
      2006, there were a total of 1,843,446 shares available for issuance under the
      2000 Stock Incentive Plan and no shares under the 1998 Stock Option Plan.




WebEx
      also administers the 2000 Employee Stock Purchase Plan, which along with the
      2000 Stock Incentive Plan was approved by the stockholders on June 17, 2000.
      A
      total of 3,137,398 shares of common stock have been reserved for issuance under
      this plan. This plan allows eligible employees to purchase common stock at
      85%
      of the lower of the fair value of common stock on either the first day or last
      day of a defined participation period. In May 2005, WebEx changed the defined
      participation period from 24 months to 6 months. As of June 30, 2006, 369,589
      shares were available for issuance under this plan.





A
      summary
      of the option activity under the 1998 and 2000 stock plans for the period ended
      June 30, 2006 was as follows:





**Shares**
            
            
            **Weighted-Average
                Exercise Price**
            
            
            **Weighted
                Average Remaining Contractual Term (In years)**
            
            
            **Aggregate
                Intrinsic Value (In thousands)**Outstanding
                at December 31, 2005
            
            
            10,462,575
            
            $
            20.72Granted
            
            
            640,241
            
            $
            29.54Exercised
            
            
            (1,899,453
            )
            $
            17.85Forfeited/cancelled/expired
            
            
            (1,172,855
            )
            $
            22.98Outstanding
                at June 30, 2006
            
            
            8,030,508
            
            $
            21.77
            
            
            7.66
            
            $
            111,486Vested
                and expected to vest at June 30, 2006
            
            
            6,850,916
            
            $
            21.55
            
            
            7.48
            
            $
            96,710Vested
                at June 30, 2006
            
            
            3,312,142
            
            $
            19.99
            
            
            6.15
            
            $
            52,393





The
      aggregate intrinsic value in the table above represents the total pretax
      intrinsic value (the difference between WebEx's closing stock price on the
      last
      trading day of the second quarter of 2006 and the exercise price, multiplied
      by
      the number of in-the-money options) that would have been received by the option
      holders had all option holders exercised their options on June 30, 2006. This
      amount changes based on the fair market value of WebEx's stock. Total intrinsic
      value of options exercised for the three and six months ended June 30, 2006
      was
      $12.9 million and $30.5 million, respectively. The Company issues new
      shares of common stock upon the exercise of stock options.





A
      summary
      of restricted stock units as of June 30, 2006 and changes during the six months
      ended were as follows:





**Shares**
              **(In
                thousands)**
            
            
            **Weighted
                Average Grant Date Fair Value**Nonvested
                at December 31, 2005
            
            
            —
            
            
            —Granted
            
            
            57,211
            
            $
            32.44Vested
            
            
            —
            
            
            —Forfeited
            
            
            —
            
            
            —Nonvested
                at June 30, 2006
            
            
            57,211
            
            $
            32.44





The
      fair
      value of the Company’s restricted stock units was calculated based upon the fair
      market value of the Company’s stock at the date of grant. As of June 30, 2006,
      there was $1.8 million of total unrecognized compensation cost related to
      unvested restricted stock units granted, which is expected to be recognized
      over
      the remaining vesting period of each grant, up to the next 48 months (or a
      weighted average period of 4.0 years).





***Stock-Based
      Compensation Assumptions***





On
      January 1, 2006, the Company adopted SFAS 123R using the modified
      prospective transition method. SFAS 123R requires the measurement and
      recognition of compensation expense for all stock-based awards including
      employee stock options and employee stock purchase plans based on estimated
      fair
      values. WebEx selected the Black-Scholes option pricing model as the most
      appropriate model for determining the estimated fair value for stock-based
      awards. The fair value of share-based payment awards was calculated with the
      following assumptions and weighted average fair values as follows:





**Stock
                Options**
            **Employee
                Stock Purchase Plan****Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,**
            **Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**
            **2006**
            **2005**Weighted
                average fair value of grants
            $16.3
            $12.2
            $15.1
            $12.3
            $9.5
            $5.5
            $6.8
            $6.1Expected
                life (in years)
            4.3
            3.5
            4.4
            3.5
            0.5
            0.5-2.0
            0.5
            0.5-2.0Volatility
            54%
            76%
            57%
            76%
            39%
            34%
            33%
            55%Risk-free
                interest rate
            5.0%
            3.8%
            4.8%
            3.8%
            5.1%
            3.2%
            4.5%
            2.3%Dividend
                yield
            —
            —
            —
            —
            —
            —
            —
            —





In
      light
      of new accounting guidance under SFAS 123R, beginning in the fourth quarter
      of
      2005, WebEx reevaluated its assumptions used in estimating the fair value of
      employee options granted. Based on this assessment, management determined that
      a
      combination of implied volatility and historical volatility is a better
      indicator of expected volatility than historical volatility alone. In
      addition, as part of the Company’s SFAS 123R adoption, WebEx examined its
      historical pattern of option exercises and post-vesting termination behavior
      to
      determine the expected life assumption. The risk-free interest rate assumption
      is based upon observed interest rates appropriate for the term of the Company’s
      employee stock plans. The dividend yield assumption is based on the Company’s
      history and expectation of dividend payouts.




As
      stock-based compensation expense recognized in the Condensed Consolidated
      Statements of Income for the three and six months ended June 30, 2006 is based
      on awards ultimately expected to vest, it has been reduced for estimated
      forfeitures. SFAS 123R requires forfeitures to be estimated at the time of
      grant
      and revised, if necessary, in subsequent periods if actual forfeitures differ
      from those estimates. Forfeitures were estimated based on historical
      experience .





***Stock-Based
      Compensation under SFAS 123R***





The
      following table summarizes the impact of the adoption of SFAS 123R on our
      Condensed Consolidated Statements of Income for the three and six months ended
      June 30, 2006:








**Three
                      months ended**
                    **June
                      30,
                      2006**
            
            
            **Six
                months ended**
              **June
                30, 2006**Cost
                of revenues
            
            $
            752
            
            $
            1,530Sales
                and marketing
            
            
            2,397
            
            
            5,099Research
                and development
            
            
            1,574
            
            
            3,119General
                and administrative
            
            
            1,240
            
            
            2,844Stock-based
                compensation expense before income taxes
            
            $
            5,963
            
            $
            12,592Income
                tax benefit
            
            
            (24
            )
            
            (24
            )Stock-based
                compensation expense after income taxes
            
            $
            5,939
            
            $
            12,568Effect
                on:Net
                income per share - Basic
            
            $
            0.12
            
            $
            0.27Net
                income per share - Diluted
            
            $
            0.12
            
            $
            0.26





As
      of
      June 30, 2006, total unamortized stock-based compensation cost related to
      non-vested stock options was $35.3 million which is expected to be recognized
      over the remaining vesting period of each grant, up to the next 48 months (or
      a
      weighted average period of 2.8 years). Total unrecognized compensation costs
      related to employee stock purchase plans as of June 30, 2006 was $975,000 and
      is
      expected to be recognized over a weighted average period of 0.33 years.





Prior
      to
      the Company’s adoption of SFAS 123R, benefits of tax deductions in excess of
      recognized compensation costs were reported as operating cash flows. SFAS 123R
      requires that they be recorded as a financing cash inflow rather than as a
      reduction of taxes paid. For the three and six months ended June 30, 2006,
      the
      Company recorded $2.2 million and $3.7 million of excess tax benefits from
      stock-based compensation as a financing cash inflow.





***Stock-Based
      Compensation under Fair Value Method of SFAS 123***





The
      table
      below sets out the proforma amounts of net income and net income per share
      that
      would have resulted for the three and six months ended June 30, 2005, if WebEx
      accounted for its employee stock plans under the fair value recognition
      provisions of SFAS 123.





**Three
                  months ended**
                **June
                  30, 2006**
            
            
            **Six
                months ended**
              **June
                30, 2005**Net
                income as reported
            
            $
            13,880
            
            $
            26,730Add:
                Stock-based employee compensation expense included in determination
                of net
                income, net of tax
            
            
            (6
            )
            
            (7
            )Deduct:
                Stock-based employee compensation expense determined under the fair-value
                based method, net of tax
            
            
            (3,762
            )
            
            (11,099
            )Pro-forma
                net income
            
            $
            10,112
            
            $
            15,624Net
                income per share:
              Basic:
              As
                reported
            
            $
            0.31
            
            $
            0.59Pro
                forma
            
            $
            0.22
            
            $
            0.35Diluted:
              As
                reported
            
            $
            0.29
            
            $
            0.57Pro
                forma
            
            $
            0.21
            
            $
            0.33








**Note
      3: Net Income per Share**







Basic
      net
      income per share is calculated using net income and the weighted-average number
      of shares outstanding during the reporting period. Diluted net income per share
      includes the effect from potential issuance of common stock, such as common
      stock issuable pursuant to the exercise of stock options.




The
      reconciliation of the numerators and denominators of the basic and diluted
      net
      income per share calculations was as follows:





**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(In
                thousands, except per share data)**Numerator:Net
                income
            
            $
            10,720
            
            $
            13,880
            
            $
            19,771
            
            $
            26,730Denominator:Weighted
                average shares used to compute basic net income per share
            
            
            47,843
            
            
            45,479
            
            
            47,245
            
            
            45,223Effect
                of dilutive securities:Dilutive
                potential common shares
            
            
            1,896
            
            
            2,039
            
            
            1,690
            
            
            1,960Weighted
                average shares used to compute diluted net income per
                share
            
            
            49,739
            
            
            47,518
            
            
            48,935
            
            
            47,183


Net
      income per share:


Basic
            
            $
            0.22
            
            $
            0.31
            
            $
            0.42
            
            $
            0.59Diluted
            
            $
            0.22
            
            $
            0.29
            
            $
            0.40
            
            $
            0.57








The
      following potential common shares have been excluded from the computation of
      diluted net income per share because their inclusion would have been
      anti-dilutive:




**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            **2005**
            **2006**
            **2005****(In
                thousands, except price range)**Outstanding
                common stock options
            309
            2,403
            405
            3,330Price
                range
            $33.25-$55.38
            $23.95-$55.38
            $30.45-$55.38
            $22.87-$55.38





Stock
      options are antidilutive when the exercise price of the options is greater
      than
      the average market price of the common shares for the period.





**Note
      4: Sales Reserve and Allowance for Doubtful Accounts**





WebEx
      records an estimate of sales reserve for losses on receivables resulting from
      customer credits, cancellations or terminations as a reduction in revenue at
      the
      time of sale. The sales reserve is estimated based primarily on an analysis
      of
      the historical rate of credits, cancellations or terminations. The accuracy
      of
      the estimate is dependent on the rate of future credits, cancellations or
      terminations being consistent with the historical rate .




WebEx
      records an allowance for doubtful accounts to provide for losses on receivables
      due to customer insolvency risk. Increases to the allowance for doubtful
      accounts are charged to general and administrative expense as bad debt expense.
      The allowance is estimated based primarily on an analysis of the historical
      rate
      of insolvency losses. The accuracy of the estimate is dependent on the future
      rate of insolvency losses being consistent with the historical rate .





The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the three and six months ended June 30, 2006 and
      2005:








**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Sales
                reserve:Beginning
                balance
            
            $
            6,528
            
            $
            4,387
            
            $
            6,077
            
            $
            4,631Amounts
                deducted from revenue
            
            
            5,851
            
            
            3,179
            
            
            10,523
            
            
            5,800Amounts
                written off
            
            
            (5,149
            )
            
            (2,818
            )
            
            (9,370
            )
            
            (5,683
            )Ending
                balance
            
            $
            7,230
            
            $
            4,748
            
            $
            7,230
            
            $
            4,748Allowance
                for doubtful accounts:Beginning
                balance
            
            $
            1,063
            
            $
            845
            
            $
            1,054
            
            $
            1,003Amounts
                charged (credited) to bad debt expense
            
            
            302
            
            
            (34
            )
            
            454
            
            
            203Amounts
                written off
            
            
            (88
            )
            
            (249
            )
            
            (231
            )
            
            (644
            )Ending
                balance
            
            $
            1,277
            
            $
            562
            
            $
            1,277
            
            $
            562Total
                sales reserve and allowance for doubtful accounts:Beginning
                balance
            
            $
            7,591
            
            $
            5,232
            
            $
            7,131
            
            $
            5,634Amounts
                deducted from revenue / charged (credited) to bad debt expense
            
            
            6,153
            
            
            3,145
            
            
            10,977
            
            
            6,003Amounts
                written off
            
            
            (5,237
            )
            
            (3,067
            )
            
            (9,601
            )
            
            (6,327
            )Ending
                balance
            
            $
            8,507
            
            $
            5,310
            
            $
            8,507
            
            $
            5,310








**Note
      5: Comprehensive Income**





The
      changes in the components of other comprehensive income, net of taxes, were
      as
      follows:





**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Net
                income
            
            $
            10,720
            
            $
            13,880
            
            $
            19,771
            
            $
            26,730Other
                comprehensive income (loss), net of tax:Foreign
                currency translation adjustments
            
            
            313
            
            
            (348
            )
            
            472
            
            
            40Unrealized
                gain on investments
            
            
            51
            
            
            141
            
            
            1
            
            
            14364
            
            
            (207
            )
            
            473
            
            
            54Comprehensive
                income
            
            $
            11,084
            
            $
            13,673
            
            $
            20,244
            
            $
            26,784





**Note
      6:**  **Cash
      Equivalents and Short-term Investments**





The
      following is a summary of available-for-sale investments as of June
      3 0,
      2006
      and December 31, 2005:





**June
                30, 2006**
            **December
                31, 2005****Cost**
            
            
            **Gross
                Unrealized Gains**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Estimated
                Fair Value**
            
            
            **Cost**
            
            
            **Gross
                Unrealized Gains**
            
            
            **Gross
                Unrealized Losses**
            
            
            **Estimated
                Fair Value**Available-for-Sale
                Securities:
            
            **(In
                thousands)**Corporate
                notes and bonds
            
            $
            27,256
            
            $
            2
            
            $
            (139
            )
            $
            27,119
            
            $
            37,550
            
            $
            2
            
            $
            (212
            )
            $
            37,340Municipal
                notes and bonds
            
            
            170,849
            
            
            —
            
            
            (271
            )
            
            170,578
            
            
            96,009
            
            
            —
            
            
            (193
            )
            
            95,816Government
                agencies
            
            
            35,327
            
            
            —
            
            
            (365
            )
            
            34,962
            
            
            46,326
            
            
            —
            
            
            (371
            )
            
            45,955Money
                market funds
            
            
            13,590
            
            
            —
            
            
            —
            
            
            13,590
            
            
            1,537
            
            
            —
            
            
            —
            
            
            1,537Total
            
            $
            247,022
            
            $
            2
            
            $
            (775
            )
            $
            246,249
            
            $
            181,422
            
            $
            2
            
            $
            (776
            )
            $
            180,648








Cash
              and cash equivalents
            
            
            
            
            
            
            
            
            
            
            $
            17,620
            
            
            
            
            
            
            
            
            
            
            $
            1,538Short-term
              investments
            
            
            
            
            
            
            
            
            
            
            
            228,629
            
            
            
            
            
            
            
            
            
            
            
            179,110Total
            
            
            
            
            
            
            
            
            
            
            $
            246,249
            
            
            
            
            
            
            
            
            
            
            $
            180,648


The
      fair
      value of the Company’s investment in available-for-sale securities, by
      contractual maturity, was as follows:




June
                30, 2006
            
            
            **December
                31, 2005****(in
                thousands)**Due
                in less than one year
            
            $
            150,985
            
            $
            88,150Due
                in 1-5 years
            
            
            95,264
            
            
            92,498Total
            
            $
            246,249
            
            $
            180,648





Realized
      gains and losses from sales of available securities were zero in the three
      and
      six months ended June 30, 2006 and not material in the three and six months
      ended June 30, 2005.





**Note
      7: Goodwill and Intangibles, Net**


***Goodwill***
            
            
            **Amount****(in
                thousands)**Balance,
                December 31, 2005
            
            $
            28,224Goodwill
                acquired during the period
            
            
            —Goodwill
                adjustment related to Intranets.com, Inc. acquisition
            
            
            (1,607
            )Balance,
                June 30, 2006
            
            $
            26,617





The
      goodwill adjustment during the six months ended June 30, 2006 shown in the
      table
      above corresponds to the Company’s evaluation of the deferred
      tax assets and valuation allowance related to the utilization of the Company’s
      net operating loss carryforwards. The evaluation completed during the first
      quarter of 2006 resulted in the realization of the tax benefit of these deferred
      assets, of which $1.6 million reduced goodwill related to net operating loss
      carryforwards acquired from Intranets.com, Inc. (“Intranets”).





In
      accordance with SFAS No. 142, the Company does not amortize goodwill but
      evaluates it at least on an annual basis for impairment. The Company completed
      annual goodwill impairment tests during the fourth quarter of 2005 and 2004
      and
      determined that the carrying amount of goodwill was not impaired. However,
      future goodwill impairment tests could result in a charge to earnings. WebEx
      will continue to evaluate goodwill on an annual basis during the fourth quarter
      and whenever changes in circumstances indicate there may be a potential
      impairment.







***Purchased
      Intangible Assets***





Intangible
      assets, net as of June 30, 2006 and December 31, 2005 consisted of the
      following:








**June
                30, 2006**
            **December
                31, 2005****Gross**
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Accumulated**
              **Amortization**
            
            
            **Net****(In
                thousands)**Developed
                technology
            
            $
            9,120
            
            $
            (1,713
            )
            $
            7,407
            
            $
            9,120
            
            $
            (780
            )
            $
            8,340Intellectual
                property rights
            
            
            4,326
            
            
            (2,156
            )
            
            2,170
            
            
            4,326
            
            
            (1,987
            )
            
            2,339Trade
                names and domain names
            
            
            1,556
            
            
            (431
            )
            
            1,125
            
            
            1,556
            
            
            (271
            )
            
            1,285Customer
                contracts and relationships
            
            
            5,123
            
            
            (1,138
            )
            
            3,985
            
            
            5,123
            
            
            (634
            )
            
            4,489Total
                purchased intangible assets
            
            $
            20,125
            
            $
            (5,438
            )
            $
            14,687
            
            $
            20,125
            
            $
            (3,672
            )
            $
            16,453











Amortization
      is recorded using the straight-line method over the estimated useful lives
      of
      these assets, which range from 3-10 years.





Estimated
      future amortization expense of existing intangibles is as follows:





**Year:**
            
            
            **Amortization**
              **Expense****(In thousands)**2006
                (remaining 6 months)
            
            $
            1,7132007
            
            
            3,3592008
            
            
            3,2692009
            
            
            3,1742010
            
            
            2,240Thereafter
            
            
            932Total
            
            $
            14,687







**Note
      8:**  **Commitments
      and Contingencies**




***Contractual
      Commitments***




WebEx
      leases certain equipment and facilities under non-cancelable operating leases
      expiring through 2014. Future minimum lease payments and purchase commitments
      by
      year and in the aggregate, as of June 30, 2006, were as follows:





**Remaining
                6 months of 2006**
            
            
            **2007**
            
            
            **2008**
            
            
            **2009**
            
            
            **2010**
            
            
            **2011
                and after**
            
            
            **Total****(In
                thousands)**Operating
                leases commitments
            
            $
            3,345
            
            $
            6,241
            
            $
            6,708
            
            $
            6,092
            
            $
            5,653
            
            $
            13,625
            
            $
            41,664Purchase
                commitments
            
            
            25,839
            
            
            2,527
            
            
            6
            
            
            37
            
            
            —
            
            
            —
            
            
            28,409Total
            
            $
            29,184
            
            $
            8,768
            
            $
            6,714
            
            $
            6,129
            
            $
            5,653
            
            $
            13,625
            
            $
            70,073





***Lease
      Commitments***





WebEx
      leases facilities in various U.S. cities and in several non-U.S. countries
      for
      sales-related activities and, in some cases, to house equipment used in the
      operation of the Company’s MediaTone network. Leases are accounted for under the
      provisions of SFAS No. 13, *Accounting
      for Leases* ,
      which
      requires that leases be evaluated and classified as operating or capital for
      financial reporting purposes. All rented office space that the Company currently
      occupies is classified as an operating lease. Rent expense is recognized based
      on an effective rate of rent per square foot, which takes into account scheduled
      rent increases, the amount of space occupied at any time and certain incentives
      provided by the lessor. This results in the same amount of rent expense per
      square foot occupied in all periods during the lease term.





In
      April
      2004, WebEx signed a lease to occupy space in a building located in Santa Clara,
      California, that serves as WebEx’s corporate headquarters. The lease term is for
      approximately ten years, and initial occupancy commenced in the third quarter
      of
      2004. The Company took possession of additional space in January 2005 and is
      committed to occupy additional space in February 2008. The rent for all of
      this
      space is included in the future minimum rental payments. Minimum lease payments
      under this lease began in January 2005 and total an aggregate of $23.8 million
      for the life of the lease. Under the lease agreement, the landlord provided
      incentives of $2.3 million including the construction of leasehold improvements
      for no additional payments by the Company, and payment of certain operating
      expenses for the initial 20 months covered by the lease valued at $786,000.
      Lease incentives received have been accounted for as capitalized assets and
      are
      amortized over the lease term. The lease currently requires a security deposit
      of $3.2 million, which WebEx satisfied through a letter of credit issued under
      WebEx’s credit line.





***Purchase
      Commitments***








At
      June
      30, 2006, WebEx had purchase commitments totaling approximately $28.4 million
      for the usage of telecommunication lines and data services, equipment and
      software purchases and the construction of leasehold improvements at new leased
      facilities. The majority of the purchase commitments are expected to be settled
      in cash within 12 months.




***Other
      Commitments***





WebEx
      has
      a revolving credit line with a bank that provides available borrowings up to
      $7.0 million. Amounts borrowed under the revolving credit line bear interest
      at
      the prime rate and may be repaid and reborrowed at any time prior to the
      maturity date. The credit agreement expires June 15, 2007. The credit agreement
      is unsecured and is subject to compliance with covenants, including a minimum
      quick ratio and minimum profitability, with which the Company is currently
      in
      compliance. As of June 30, 2006, the Company had no outstanding borrowings
      under
      the credit line, but did have $3.5 million in letters of credit issued to secure
      leases, which decline in value over the length of the respective
      leases.





***Indemnity
      and Warranty Obligations***




In
      WebEx’s agreements with customers and resellers, WebEx agrees to indemnify the
      customers and resellers in the event a third party asserts an intellectual
      property infringement claim against the customer or reseller based on WebEx
      services. Certain restrictions are placed on the indemnity obligations,
      including geographical limitations and limitations on the type of claims
      covered. In addition, WebEx has provided certain warranties and committed to
      maintain certain service levels in some of its agreements with customers and
      resellers. These warranty and service level provisions specify limited remedies
      available to the customer or reseller in the event of a breach of the warranty
      or a failure to maintain the specified service level. In addition, WebEx’s
      agreements contain limitation of liability provisions, which disclaim
      responsibility for consequential, special or indirect damages and which
      generally limit WebEx’s liability under the agreements to the amount of fees
      paid to WebEx. However, any
      failure in a customer’s business interaction or other communications activity
      that is caused or allegedly caused by our services, could result in a claim
      for
      damages against us, regardless of our responsibility for the failure, and cause
      us to incur unexpected costs which could unfavorably impact our revenue. Although
      customers and resellers have on a few occasions brought to WebEx’s attention
      potential third party intellectual property claims, as of June 30, 2006, WebEx
      had not incurred any liability with respect to its indemnification obligations.
      Likewise, customers and resellers may bring claims with respect to WebEx’s
      warranty and service level obligations, but as of June 30, 2006, WebEx has
      not
      incurred a material liability with respect to such claims.




***Other***





WebEx
      has
      not generally collected sales tax from customers in the United States and
      believes the services it provides are generally exempt from sales tax. 
However, two states and one city have commenced or indicated that they intend
      to
      commence an audit of the Company in connection with potential sales and use
      tax
      liability. In April 2006, that same city sent WebEx a notice of assessment
      concerning use tax. In addition, commencing after June 30, 2006, WebEx began
      collecting sales tax from customers in two states. Moreover, in the future,
      federal tax authorities or tax authorities in one or more states could assert
      that WebEx is obligated to collect such taxes from its customers and remit
      those
      taxes to those authorities.  The collection and remittance of such taxes is
      not expected to have a material impact on WebEx's financial statements.  It
      is also possible, however, that such authorities could seek to collect sales
      taxes for sales of services by WebEx in the past.  If such a claim were to
      be asserted against WebEx and WebEx was found liable for such back taxes and
      WebEx was unable to collect such taxes from its customers, WebEx could incur
      an
      expense equal to the amount of such taxes and any associated interest and
      penalties.





The
      Company concluded during the fourth quarter of 2005 that one audit as mentioned
      above was likely to be conducted and that the authorities in one state were
      likely to assert a claim or claims as a result of this audit. While the Company
      will contest any such claim(s), it believes that it was probable that a
      liability had been incurred as of December 31, 2005 and made an accrual in
      accordance with paragraph 8 of SFAS No. 5, Accounting for Contingencies. During
      the second quarter of 2006, the Company recorded an additional $900,000 relating
      to this state and one other state, in which it has currently begun to collect
      sales tax. The Company has not received any formal assessment from any state
      concerning sales or use tax.





**Note
      9: Litigation**




In
      accordance with SFAS No. 5, the Company records a provision for a liability
      when
      management believes that it is both probable that a liability has been incurred
      and WebEx can reasonably estimate the amount of the loss. The Company reviews
      any provisions at least quarterly and adjusts these provisions to reflect the
      impact of negotiations, settlements, rulings, advice of legal





counsel
      and other information and events pertaining to a particular case. The Company
      believes it has adequate provisions for any such matters.





On
      March
      27, 2006, a lawsuit was filed in the United States District Court for the
      Southern District of Texas by Automated Business Companies against a number
      of
      companies, including WebEx, alleging that the defendants’ services which “enable
      individuals to remotely control their personal computers” infringe three of the
      plaintiff’s patents.  WebEx believes that the claims being asserted in the
      lawsuit are without merit and that it has meritorious defenses against such
      claims. Accordingly, WebEx intends to vigorously defend itself against these
      claims. The Company has not recorded any accrual in connection with this
      matter.








**Note
      10: Segment Information**





SFAS
      No.
      131, *Disclosure
      about Segments of an Enterprise and Related Information* ,
      establishes standards for the reporting by business enterprises of information
      about operating segments, products and services, geographic areas, and major
      customers. The standard for determining what information to report is based
      on
      operating segments within WebEx that are regularly reviewed and used by the
      chief operating decision maker in evaluating financial performance and resource
      allocation.




WebEx’s
      chief operating decision-maker is considered to be the chief executive officer
      (“CEO”). Based on the financial information reviewed by the CEO, the Company has
      determined that it operates in a single operating segment, specifically, web
      collaboration services.














**Item
      2.** ***Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations*** ****




**When
      used in this Report, the words “anticipates,” “expects,” “intends,” “plans,”
“believes,” “seeks,” “estimates” and similar expressions are intended to
      identify forward-looking statements. These are statements that relate to future
      periods and include, but are not limited to, statements regarding our business
      focus, statements about the features, benefits and performance of our current
      service offerings and technology including our belief that use of our services
      allows users to be more productive and efficient, sources of revenue, expected
      expenses including those related to sales and marketing, research and
      development and general and administrative, our use of net operating loss
      carryforwards, our beliefs regarding the health and growth of the market for
      our
      web collaboration services and reasons for growth, our anticipation that cash
      flow from operations will be sufficient to fund our current operations as well
      as fund future expansion, our expectation that existing cash resources and
      cash
      generated from operations will be sufficient to fund our anticipated working
      capital needs and capital expenditures for at least the next twelve months
      and
      that we will continue to generate cash from operations for at least the next
      twelve months, our investments and potential interest rate exposure, our tax
      liability exposure, our intent to license technologies from third parties that
      are integrated into our services, our plans to increase headcount, relocate
      certain operations and the related costs, our plans to upgrade and expand our
      applications, our reliance on our China subsidiary, statements regarding our
      internal controls, the effect of recent accounting pronouncements and our legal
      proceedings. Forward-looking statements are subject to risks and uncertainties
      that could cause actual results to differ materially from those projected.
      These
      risks and uncertainties include, but are not limited to, our dependence on
      key
      products and/or services, demand for our products and services, our ability
      to
      attract and retain customers and resellers for existing and new services, the
      impact of reseller practices on our business, our ability to expand and manage
      our operations internationally, our ability to expand and manage our
      infrastructure to meet both our internal corporate needs as well as the demand
      for our services, our ability to control our expenses, our ability to integrate
      and manage acquisitions, our ability to recruit and retain employees
      particularly in the areas of sales, engineering, support and hosting services,
      the ability of resellers to successfully resell our services, the economy,
      political tensions or conflict, the strength of competitive offerings, the
      prices being charged by those competitors, the risks discussed below and the
      risks discussed in Item 1A “Risk Factors” below. These forward-looking
      statements speak only as of the date hereof. We expressly disclaim any
      obligation or undertaking to release publicly any updates or revisions to any
      forward-looking statements contained herein to reflect any change in our
      expectations with regard thereto or any change in events, conditions or
      circumstances on which any such statement is based.**








**Overview**




***Business,
      Principal Products, Locations***





We
      offer
      several on-demand web collaboration services. “On-demand” is a software industry
      term meaning that the software is hosted at the vendor’s facilities and
      furnished to customers as a service—sometimes also called “software as a
      service” (SaaS) or a “hosted” service—rather than the software being furnished
      in tangible disc or downloaded-file form for physical installation on a computer
      server at the customer’s location. By web collaboration services, we mean
      services that allow end-users to conduct online meetings, share software
      applications, documents, presentations and other content online, participate
      in
      large-scale events or programs,and coordinate projects, activities and tasks
      over the Internet using a standard web browser. Our web collaboration services
      enable users to engage in rich-media, interactive, real-time communications
      without the need to be in the same physical location, which we believe allows
      users to be more productive and efficient.




Originally,
      our principal product offering consisted of a basic real-time collaboration
      service—the web meeting. Since then we have expanded our offerings to include
      more advanced web collaboration services that complement our basic web meeting
      service. We sometimes also refer to such enhanced web collaboration services,
      which are designed for specific uses such as training, events, support and
      sales, as web applications. During 2005 we added to our service offerings a
      new
      set of asynchronous collaboration services acquired in connection with our
      Intranets.com, Inc. (“Intranets”) acquisition. The term “asynchronous
      collaboration” means collaboration not occurring at the same time and includes
      capabilities such as shared document
      folders, shared calendars, task management, shared database applications,
      discussion forums and contact directories . Our
      current business focus is to continue to enhance and market our various web
      collaboration services including web meetings and web applications, to develop
      and deploy new services such as our new asynchronous collaboration services,
      to
      expand our sales and marketing organizations, and to expand our WebEx MediaTone
      Network.




Our
      web
      collaboration services generally run on our underlying WebEx
      MediaTone Network. The WebEx
      MediaTone Network is a private, switched, web-based network that is designed
      to
      deliver scalable, secure and managed real-time web collaboration services.
      The
      WebEx MediaTone Network is based on MediaTone, our proprietary information
      switching technology. Our MediaTone





technology
      allows the WebEx MediaTone Network to handle high-speed data, voice and video
      communications, manage complex media types, and deliver—whether over traditional
      hard-wired or wireless fidelity (Wi-Fi) networks—advanced communications
      capabilities to hundreds or even thousands of computers simultaneously
      regardless of location across a wide variety of platforms, computer operating
      systems, devices and browsers.




Our
      corporate headquarters is located in Santa Clara, California, and we have a
      network operations center located in Mountain View, California. We also lease
      facilities in various U.S. cities and in several non-U.S. countries, in most
      cases for sales-related activities and, in certain other cases, to support
      our
      worldwide technical operations including the housing of equipment used in the
      operation of our MediaTone Network.




***Revenue
      and Cash-Generation Models***





We
      sell
      our services directly to customers, which in the second quarter of 2006
      accounted for approximately 86% of our revenue, or $80.3 million. We also sell
      our services indirectly through our resellers that buy and resell our services.
      These sales in the second quarter of 2006 represented approximately 14% of
      our
      revenue, or $12.6 million. With our resellers, w e
      sell
      our services to and contract directly with the reseller, and revenue is
      recognized based on net amounts charged to the reseller. We also have another
      type of distribution arrangement--known as a referral arrangement--in which
      a
      third party refers a potential customer to our direct sales force, which in
      turn
      seeks to enter into a contract directly with the potential customer. When a
      sale
      is made from us to a customer through a lead provided by a referral agent,
      the
      referral agent receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      and
      we categorize such revenue as revenue received from services sold directly
      to
      customers.




The
      majority of our revenue is currently generated based on a committed-subscription
      pricing model. We offer several forms of committed-subscription
      pricing:





-
            “Flat
                rate” pricing, in which the customer pays a set price per month regardless
                of usage. A majority of our committed-subscription customers purchase
                our
                services in this manner;




-
            “Concurrent-user”
                or “per port” pricing which enables a customer to have a set number of
                users connected to WebEx meetings at any one time;




-
            “Minimum
                minutes” pricing, in which the customer commits to pay for a certain
                number of minutes of usage during a specified time period.




We
      refer
      to the revenue associated with our various committed subscription arrangements
      as committed revenue.





Currently,
      our most popular flat-rate offering is the named host offering, in which a
      certain named individual may host meetings at which up to a certain number
      of
      attendees may participate. The
      named
      host service differs from the concurrent-user port offering in several respects:
      (i) with the concurrent user offering, any employee of the customer may host
      a
      meeting, whereas with the named host service only employees who are designated
      as named hosts may host a meeting, (ii) the price charged for a named host
      subscription is appreciably lower than the price charged for a concurrent user
      subscription, in part because the named host model is less flexible with respect
      to who can host a meeting, and (iii) unlike the concurrent user offering, with
      the named host offering there are effectively no overage fees. We also offer
      a
      full-deployment offering in which all employees within a company can utilize
      WebEx meeting services for a flat monthly rate. During
      the fourth quarter of 2005 we introduced two new flat-rate offerings, targeted
      at individuals and small businesses. The first offering, available for purchase
      online and called MeetMeNow, is a simple web conferencing service offered on
      a
      monthly basis. The second flat-rate offering is our WebEx WebOffice line of
      collaboration services, which we offer for purchase through a variety of monthly
      subscription plans.




In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include
      certain reseller arrangements, customer overage fees for above-the-subscribed-to
      use of ports or minutes, many types of telephony charges, individual pay-per-use
      services purchased directly from our website, and a limited number of customers
      who do not have a minimum commitment obligation of any kind. A majority of
      revenue received from our telecommunications partner arrangements is usage
      based. In addition, we sometimes obtain usage-based fees from subscription
      customers in the form of overage fees. Overage fees are charged when a customer
      subscribing to a set number of ports uses more than the subscribed number of
      ports, or when a customer on a minutes pricing model uses more than its
      commitment. We get per-minute telephony revenue when we provide the audio
      conferencing component of a web conferencing session. Finally, we have
      per-minute





web
      conferencing services available through our website and payable by credit card.
      We refer to the revenue derived from this per minute or usage-based pricing
      model, measured as of the end of any month, as uncommitted revenue .




We
      typically bill our customers monthly and on open account. For each of our flat
      rate, concurrent-user and monthly minutes-based commitment subscription
      customers, the customer is billed monthly in advance based on the monthly
      subscription amount stated in the customer agreement. For these customers,
      additional usage beyond the monthly subscription quantity, or overage, is billed
      in arrears based on the actual amount of such overage. For quarterly,
      semi-annual and annual minutes-based subscription customers, all monthly billing
      is in arrears and based on actual usage during the month. If, following the
      last
      month billed, aggregate actual usage is less than the subscription amount,
      then
      in addition to actual usage for the final month, the customer is billed for
      the
      remaining amount of the contractual commitment not previously
      billed.




***Market
      Opportunities, Related Challenges and Our Responses*** ****





We
      believe the market for on-demand web collaboration services to be healthy and
      growing. Various published articles have cited several trends underlying this
      projected market increase. One trend is the desire of many companies to achieve
      cost savings in the areas of information technology, or IT, spending and
      employee travel. In light of increased IT budget constraints reportedly faced
      by
      many companies and particularly small companies or self-employed individuals,
      we
      believe a cost-saving decision is to purchase services from an on-demand web
      collaboration services vendor to meet a company’s needs, rather than undertaking
      the capital and personnel spending necessary to purchase, install and maintain
      their own systems to provide that type of functionality. Additionally, as a
      result of increasing fuel prices and travel costs, we believe companies may
      decide that online collaboration—that is, web conferencing and web
      applications—can reduce costs and obviate the need to travel to conduct
      business, perform training, provide support or participate in large-attendee
      events. However, it is possible that growth in the market for web collaboration
      services may slow down or be less than currently projected.




There
      exist a number of challenges to the projected market growth scenario for
      on-demand web collaboration services, including a concern—actual or
      perceived—about security. As the universe of corporate activities that can be
      conducted in a web conference or with a web application expands, more and more
      of these activities will embrace sensitive corporate or government financial
      data, plans, projects or other proprietary information. If on-demand web
      collaboration technologies do not have embedded within them adequate security
      protections so that the contents of, for example, web conference or application
      will remain private among the participants, usage may not grow as projected.
      Moreover, to the extent that there occur publicized incidents of security
      breaches associated with usage of a web collaboration technology, regardless
      of
      which vendor is involved, the security-related concerns of would-be users of
      the
      technology likely will be increased and this could dampen market growth. We
      have
      assigned a high priority, in the design and implementation of our WebEx
      MediaTone Network, to these security issues.




Another
      challenge to broad adoption of on-demand web collaboration services is general
      acceptance of this mode of communication as a normal part of business activity.
      Individuals may not feel comfortable using the technology, or they may prefer
      traditional means of communicating such as the telephone or face-to-face
      meetings. Broad adoption of web collaboration will occur only if large numbers
      of users incorporate the use of this technology as part of their normal business
      activity.




***Industry-Wide
      Factors Relevant to Us***





The
      collaboration software and services market is intensely competitive, subject
      to
      rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies in regards to specific
      elements of our on-demand web collaboration services. For example, we compete
      with providers of traditional communications technologies such as
      teleconferencing and videoconferencing, applications software and tools
      companies including online application services providers, and web conferencing
      products and services such as Adobe Systems, Cisco Systems, Citrix Systems,
      Genesys, IBM, Microsoft,
      Netviewer, NTR, Oracle, PC Visit and Saba.





In
      addition to the above competitors, certain of our resellers offer competitive
      web conferencing, web application and other collaborative web communications
      services. One of our key resellers, Intercall, is a subsidiary of West
      Corporation which in April 2006 acquired our competitor Raindance. As a result
      of its acquisition of Raindance, Intercall could choose to increase its emphasis
      on offerings competitive with ours, or cease to offer some or all of our
      offerings, or both.




Competition
      from Microsoft for the collaboration software and services markets may adversely
      affect us. ** Microsoft
      since 2003 has had a product offering which is competitive with ours and which
      is called Microsoft Office Live Meeting. In 2005, Microsoft





acquired
      collaboration software provider Groove Networks. Subsequent to this acquisition,
      Microsoft announced its new Office Live offering, which it described as a set
      of
      Internet-based software services. Microsoft is currently offering a free “beta”,
      or pre-commercial release, version of Office Live. Microsoft’s investment of
      development and marketing resources in products or services that compete
      directly with us and Microsoft’s integration of competitive technologies from
      other companies, including Groove Networks and Placeware, may have an adverse
      impact on our business. More generally, Microsoft may attempt to leverage its
      dominant market position in the operating system, productivity application
      or
      browser markets, through technical integration or bundled offerings, to expand
      further its presence in these web communications markets. This expanded
      Microsoft presence in web collaboration markets could make it difficult for
      other vendors of web communications products and services, such as WebEx, to
      compete.





In
      addition, some competitors offer web communications products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. In
      2005, we introduced new services with lower entry prices that enable us to
      compete more effectively with such offerings. If our industry were to experience
      a general decline in prices and there were not a sufficient increase in volume
      to compensate for the price reductions, we might be forced to change the extent
      and type of resources we deploy in the selling of our services in an effort
      to
      maintain operating margins, such as switching to different sales practices.





Finally,
      some of our competitors such as IBM and Cisco Systems offer software products
      or
      products that are a combination of software and hardware that include web
      collaboration functionality. This type of web collaboration offering, sometimes
      called a customer premise or on-premise solution, allows customers to purchase
      such products, install them at their own facilities, and manage the products
      by
      themselves. If significant numbers of existing or potential customers determine
      that they would prefer to have their web conferencing or more advanced web
      collaboration needs met with these types of products, demand for WebEx services
      may decrease.








**Critical
      Accounting Policies and Estimates**








***General***




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our condensed consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these financial statements requires
      us to make estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenue and expenses. We base our estimates on historical
      experience and on various other assumptions that we believe to be reasonable
      under the circumstances, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions.





An
      accounting policy is deemed to be critical if it requires an accounting estimate
      to be made based on assumptions about matters that are highly uncertain at
      the
      time the estimate is made, and if different estimates that reasonably could
      have
      been used or if changes in the accounting estimate that are reasonably likely
      to
      occur, could materially change the financial statements. We believe that there
      are a number of accounting policies that are critical to understanding our
      historical and future performance. These significant accounting policies relate
      to revenue recognition, sales reserves, allowance for doubtful accounts, income
      taxes, goodwill and intangible assets and stock-based compensation. The
      policies, and our procedures related to these policies, are described in detail
      below.





***Revenue
      Recognition***





Revenue
      is derived from the sale of web collaboration services. Web collaboration
      services revenue is generated through a variety of contractual arrangements
      directly with customers and with resellers, who in turn sell the services to
      customers. We sell web collaboration services directly to customers through
      service subscriptions and pay-per-use arrangements. Under these arrangements,
      customers access the application hosted on our servers using a standard web
      browser. Subscription arrangements include monthly subscriber user fees and
      user
      set-up fees. The subscription arrangements are considered service arrangements
      in accordance with EITF Issue No. 00-3, *Application
      of AICPA Statement of Position 97-2, Software Revenue Recognition, to
      Arrangements That Include the Right to Use Software Stored on Another Entity’s
      Hardware* ,
      and
      with multiple deliverables under EITF 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables* . In
      addition, because we provide our applications as a service, we follow the





provisions
      of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, *Revenue
      Recognition* . Under
      EITF 00-21, all deliverables are considered one unit of accounting; therefore,
      committed revenue is recognized ratably (straight-line) over the current term
      of
      the contract and variable usage-based fees are recognized as usage occurs.
      During the initial term of an agreement, we may provide training services,
      web-page design and custom set-up services. We
      consider all such deliverables to be combined with service revenues into one
      unit of accounting, as individual delivered items do not have stand-alone value
      to the customer; therefore, such revenue is recognized ratably (i.e.
      straight-line) over the initial term of the contract. We have recently began
      to
      offer consulting services to train customers how to use our web collaboration
      services to improve sales, marketing, training and other business
      activities. These consulting services are recognized upon delivery of
      the service as prescribed in SAB No. 104.





Some
      minute based subscriptions involve a quarterly, semi-annual or annual rather
      than monthly commitment by the customer. In these cases, all
      monthly billing is in arrears and monthly revenue is recognized based on actual
      usage during the month. If, following the last month billed, aggregate actual
      usage is less than the subscription amount, then in addition to actual usage
      for
      the final month the customer is billed and revenue is recognized for the
      remaining amount of the contractual commitment not previously billed. In
      addition to subscription services revenue, we derive revenue from pay-per-use
      services and telephony charges that are recognized as the related services
      are
      provided.




We
      also
      enter into reselling arrangements with certain resellers, which purchase and
      resell our services on a discounted or pay-per-use basis. We contract directly
      with resellers, and revenue is recognized based on net amounts charged to the
      reseller. Revenue under these arrangements is derived from our services provided
      to end-users and is recognized over the service period provided that evidence
      of
      the arrangement exists, the fee is fixed or determinable and collectibility
      is
      reasonably assured. Initial set up fees received in connection with these
      arrangements are recognized ratably over the initial term of the contract.
      During the initial term, we provide training services, web-page design and
      set-up services. Service fees are recognized as the services are provided for
      pay-per-use service arrangements and ratably over the service period for
      services provided on a subscription basis through the reseller. In a very small
      number of cases our reseller arrangements may require guaranteed minimum revenue
      commitments that are billed in advance to the reseller. Advance payments
      received from resellers are deferred until the related services are provided
      or
      until otherwise earned by us.





In
      a
      small minority of cases, we enter into another type of distribution
      arrangement--known as a referral arrangement--in which a third party refers
      a
      potential customer to our direct sales force, which in turn seeks to enter
      into
      a contract directly with the potential customer. In these situations, we
      bill
      the end-user directly and WebEx pays a percentage of the proceeds generated
      from
      the sale of our services to the third party. In these cases revenue is
      recognized based on amounts charged to the end-user, and amounts paid to the
      third party are recorded as sales and marketing expense.




Persuasive
      evidence for all of our arrangements is represented by binding contracts. The
      fee is considered fixed or determinable if it is not subject to refund or
      adjustment. Collectibility of guaranteed minimum revenue commitments by
      resellers is not reasonably assured; thus revenue from guaranteed minimum
      commitments is deferred until services are provided to an end-user customer
      or
      until collected from the reseller and the reseller forfeits commitment fees
      at
      the end of the commitment period.





***Sales
      Reserves***





The
      sales
      reserve is an estimate for losses on receivables resulting from customer
      credits, cancellations and terminations and is recorded as a reduction in
      revenue at the time of the sale. Increases to the sales reserve are charged
      to
      revenue, reducing the revenue otherwise reportable. The sales reserve estimate
      is based primarily on an analysis of the historical rate of credits,
      cancellations and terminations. The accuracy of the estimate is dependent on
      the
      rate of future credits, cancellations and terminations being consistent with
      the
      historical rate. If the rate of actual credits, cancellations and terminations
      is different than the historical rate, revenue would be different from what
      was
      reported.




***Allowance
      for Doubtful Accounts***





We
      record
      an allowance for doubtful accounts to provide for losses on accounts receivable
      due to customer insolvency risk. Increases to the allowance for doubtful
      accounts are charged to general and administrative expense as bad debt expense.
      The allowance estimate is based primarily on an analysis of the historical
      rate
      of insolvency losses. The accuracy of the estimate is dependent on the future
      rate of insolvency losses being consistent with the historical rate. If the
      rate
      of future insolvency losses is greater than the historical rate, then the
      allowance for doubtful accounts may not be sufficient to provide for actual
      insolvency losses. If we are uncertain whether a loss is appropriately charged
      to the sales reserve or the allowance for doubtful accounts, we charge the
      loss
      to the sales reserve.







We
      assess, on a quarterly basis, the adequacy of the sales reserve account balance
      and the allowance for doubtful accounts account balance based primarily on
      historical experience. Any adjustments to these accounts are reflected in the
      income statement for the current period, as an adjustment to revenue in the
      case
      of the sales reserve and as a general and administrative expense in the case
      of
      the allowance for doubtful accounts .




The
      following presents the detail of the changes in the sales reserve and allowance
      for doubtful accounts for the eight quarters ended June 30, 2006:





**June
                  30, 2006**
              
              
              **March
                  31, 2006**
              
              
              **December
                  31, 2005**
              
              
              **September
                  30, 2005**
              
              
              **June**
                
                **30,
                  2005**
              
              
              **March**
                
                **31,
                  2005**
              
              
              **December
                  31, 2004**
              
              
              **September
                  30, 2004**Sales
                  reserve:
              
              **(Dollars
                  in thousands)**
 Beginning
                  balance
              
              $
              6,528
              
              $
              6,077
              
              $
              5,479
              
              $
              4,748
              
              $
              4,387
              
              $
              4,631
              
              $
              4,447
              
              $
              4,995Amounts
                  deducted from revenue
              
              
              5,851
              
              
              4,672
              
              
              3,816
              
              
              4,022
              
              
              3,179
              
              
              2,621
              
              
              2,518
              
              
              1,331Amounts
                  written off
              
              
              (5,149
              )
              
              (4,221
              )
              
              (3,218
              )
              
              (3,291
              )
              
              (2,818
              )
              
              (2,865
              )
              
              (2,334
              )
              
              (1,879
              )Ending
                  balance
              
              
              7,230
              
              
              6,528
              
              $
              6,077
              
              $
              5,479
              
              $
              4,748
              
              $
              4,387
              
              $
              4,631
              
              $
              4,447Allowance
                  for doubtful accounts:Beginning
                  balance
              
              $
              1,063
              
              $
              1,054
              
              $
              880
              
              $
              562
              
              $
              845
              
              $
              1,003
              
              $
              916
              
              $
              1,266Amounts
                  charged (credited) to bad debt expense
              
              
              302
              
              
              152
              
              
              242
              
              
              454
              
              
              (34
              )
              
              237
              
              
              231
              
              
              (258
              )Amounts
                  written off
              
              
              (88
              )
              
              (143
              )
              
              (68
              )
              
              (136
              )
              
              (249
              )
              
              (395
              )
              
              (144
              )
              
              (92
              )Ending
                  balance
              
              
              1,277
              
              $
              1,063
              
              $
              1,054
              
              $
              880
              
              $
              562
              
              $
              845
              
              $
              1,003
              
              $
              916Total
                  sales reserve and allowance for doubtful accounts:Beginning
                  balance
              
              $
              7,591
              
              $
              7,131
              
              $
              6,359
              
              $
              5,310
              
              $
              5,232
              
              $
              5,634
              
              $
              5,363
              
              $
              6,261Amounts
                  deducted from revenue / charged
                (credited)
                  to bad debt expense
              
              
              6,153
              
              
              4,824
              
              
              4,058
              
              
              4,476
              
              
              3,145
              
              
              2,858
              
              
              2,749
              
              
              1,073Amounts
                  written off
              
              
              (5,237
              )
              
              (4,364
              )
              
              (3,286
              )
              
              (3,427
              )
              
              (3,067
              )
              
              (3,260
              )
              
              (2,478
              )
              
              (1,971
              )Ending
                  balance
              
              
              8,507
              
              $
              7,591
              
              $
              7,131
              
              $
              6,359
              
              $
              5,310
              
              $
              5,232
              
              $
              5,634
              
              $
              5,363Gross
                  accounts receivable
              
              $
              65,025
              
              $
              60,840
              
              $
              58,362
              
              $
              49,894
              
              $
              46,296
              
              $
              39,757
              
              $
              38,072
              
              $
              34,694
 Sales
                    reserve as a percentage of gross accounts receivable
                
                
                11.1
                %
                
                10.7
                %
                
                10.4
                %
                
                11.0
                %
                
                10.3
                %
                
                11.0
                %
                
                12.2
                %
                
                12.8
                %Allowance
                    for doubtful accounts
                  as
                    a percentage of gross accounts receivable
                
                
                2.0
                %
                
                1.8
                %
                
                1.8
                %
                
                1.8
                %
                
                1.2
                %
                
                2.1
                %
                
                2.6
                %
                
                2.6
                %Total
                    receivable reserves as a percentage of gross accounts
                    receivable
                
                
                13.1
                %
                
                12.5
                %
                
                12.2
                %
                
                12.8
                %
                
                11.5
                %
                
                13.1
                %
                
                14.8
                %
                
                15.4
                %





***Income
      Taxes***





We
      determine deferred tax assets and liabilities at the end of each year based
      on
      the future tax consequences that can be attributed to net operating loss and
      credit carryovers.  Deferred tax assets and liabilities are also determined
      based on the differences between the financial statement carrying amounts of
      existing assets and liabilities and their respective tax bases, using the tax
      rate expected to be in effect when the taxes are actually paid or
      recovered.  The recognition of deferred tax assets is reduced by a
      valuation allowance if it is more likely than not that the tax benefits will
      not
      be realized.  The ultimate realization of deferred tax assets depends





upon
      the
      generation of future taxable income during the periods in which those temporary
      differences become deductible.  We consider past performance, expected
      future taxable income and prudent and feasible tax planning strategies in
      assessing the amount of the valuation allowance.  Our forecast of expected
      future taxable income is based over such future periods that we believe can
      be
      reasonably estimated.  Changes in market conditions that differ materially
      from our current expectations and changes in future tax laws in the U.S. and
      in
      international jurisdictions may cause us to change our judgments of future
      taxable income.  These changes, if any, may require us to adjust our
      existing tax valuation allowance higher or lower than the amount we have
      recorded.  For the six months ended June 30, 2006, we evaluated our
      deferred tax assets and valuation allowance related to the utilization of our
      net operating loss carryforwards. The evaluation resulted in the realization
      of
      the tax benefit of these deferred assets of $1.8 million for the balance of
      the
      year, of which $1.6 million reduced goodwill related to the acquisition of
      Intranets.





In
      addition, the calculation of tax liabilities involves significant judgment
      in
      estimating the impact of uncertainties in the application of complex tax
      laws.  Resolution of these uncertainties in a manner inconsistent with our
      expectations could have a material impact on our results of operations.  We
      account for income tax contingencies in accordance with Statement of Financial
      Accounting Standards No. 5, *Accounting for Contingencies* .





***Impairment
      of Goodwill and Intangible Assets***





We
      assess
      the impairment of intangible and other long-lived assets whenever events or
      changes in circumstances indicate that their carrying value may not be
      recoverable from the estimated future cash flows expected to result from their
      use and eventual disposition. Amortizable intangible assets subject to this
      evaluation include acquired developed technology, intellectual property rights,
      trade names and domain names and customer contracts and relationships. We assess
      the impairment of goodwill annually during our fourth quarter and whenever
      events or changes in circumstances indicate that it is more likely than not
      that
      an impairment loss has been incurred. We are required to make judgments and
      assumptions in identifying those events or changes in circumstances that may
      trigger impairment. Some of the factors we consider include:





-  Significant
      decrease in the market value of an asset;





-  Significant
      changes in the extent or manner for which the asset is being used or in its
      physical condition;





-  A
      significant
      change, delay or departure in our business strategy related to the
      asset;





-  Significant
      negative changes in the business climate, industry or economic conditions;
      and





-  Current
      period operating losses or negative cash flow combined with a history of similar
      losses or a forecast that indicates


continuing
      losses associated with the use of an asset.





Our
      impairment evaluation of long-lived assets includes an analysis of estimated
      future undiscounted net cash flows expected to be generated by the assets over
      their remaining estimated useful lives. If the estimated future undiscounted
      net
      cash flows are insufficient to recover the carrying value of the assets over
      the
      remaining estimated useful lives, we will record an impairment loss in the
      amount by which the carrying value of the assets exceeds the fair value. We
      determine fair value based on discounted cash flows using a discount rate
      commensurate with the risk inherent in our current business model. If, as a
      result of our analysis, we determine that our amortizable intangible assets
      or
      other long-lived assets have been impaired, we will recognize an impairment
      loss
      in the period in which the impairment is determined. Any such impairment charge
      could be significant and could have a material adverse effect on our financial
      position and results of operations. Major factors that influence our cash flow
      analysis are our estimates for future revenue and expenses associated with
      the
      use of the asset. Different estimates could have a significant impact on the
      results of our evaluation.




Our
      impairment evaluation of goodwill is based on comparing the fair value to the
      carrying value of our reporting unit with goodwill. If our revenue and cost
      forecasts are not achieved, we may incur a charge for goodwill impairment,
      which
      could have a material adverse effect on our income statement.





***Stock-Based
      Compensation***





Effective
      January 1, 2006, we adopted the fair value recognition provisions of Statement
      of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
      Share-Based Payment ("SFAS 123R"), using the modified prospective
      transition method and therefore have not restated results for prior periods.
      Under this method we recognize compensation expense for all share-based





payments,
      including employee stock options and employee stock purchases related to the
      Employee Stock Purchase Plan granted after January 1, 2006 and prior to but
      not yet vested as of January 1, 2006, in accordance with SFAS 123R.
      Under the fair value recognition provisions of SFAS 123R, we recognize
      stock-based compensation net of an estimated forfeiture rate and only recognize
      compensation cost for those shares expected to vest. Prior to SFAS 123R
      adoption, we accounted for share-based payments under Accounting Principles
      Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25")
      and accordingly, generally recognized compensation expense only when we granted
      options with a discounted exercise price.





Determining
      the appropriate fair value model and calculating the fair value of share-based
      payment awards require the input of highly subjective assumptions. In
      calculating such fair value, we make certain assumptions consisting of the
      expected life of the option, volatility, risk-free interest rate, dividend
      yield
      and the weighted average fair value of grants. Actual volatility, expected
      lives, risk-free interest rates and dividend yield may be different than our
      assumptions which would result in an actual value of the options being different
      than estimated. In determining volatility, we determined that a
      combination of implied volatility and historical volatility is a better
      indicator of expected volatility than historical volatility alone. We
      examined our historical pattern of option exercises and post-vesting termination
      behavior to determine the expected life assumption. The risk-free interest
      rate
      assumption is based upon observed interest rates appropriate for the term of
      our
      employee stock plans and our dividend yield assumption is based on our history
      and expectation of dividend payouts. In addition, we are required to estimate
      the expected forfeiture rate and only recognize expense for those shares
      expected to vest. If our actual forfeiture rate is materially different from
      our
      estimate, the stock-based compensation expense could be significantly different
      from what we have recorded in the current period.





The
      adoption of SFAS 123R has had a negative effect on our reported net income,
      due
      to our past use of stock option and employee stock purchase plan awards, and
      also affects our reported amounts for pre-tax expense, tax rate, cash flow
      from
      operations and diluted shares outstanding. See Note 2 of our Condensed
      Consolidated Financial Statements located in Item 1 for a further discussion
      on
      stock-based compensation.





**Recent
      Accounting Pronouncements**




See
      Note
      1 of the Condensed Consolidated Financial Statements in Item 1 for a full
      description of recent accounting pronouncements, including the respective
      expected dates of adoption and effects on results of operations and financial
      condition.





**Results
      of Operations**





***Net
      Revenues***


**Three
                  months ended**
                **June
                  30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**Net
                revenues
            
            $
            92,862
            
            $
            75,329
            
            $
            181,326
            
            $
            146,183Increase,
                period over period
            
            $
            17,533
            
            
            
            
            $
            35,143Percentage
                increase, period over period
            
            
            23
            %
            
            
            
            
            24
            %





Net
      revenues increased 23% (18% excluding the acquisition of Intranets) during
      the
      second quarter of 2006 and 24% (19% excluding the acquisition of Intranets)
      during the first six months of 2006 as compared to the corresponding prior
      year
      periods. Net revenues increased during both periods due primarily to growth
      in
      our domestic and international subscriber base and increased usage of existing
      and new service products. During the second quarter of 2006, our number of
      subscription customers increased to 25,100.





During
      the second quarter of 2006, U.S. net revenues were $78.7 million, an increase
      of
      19% from the corresponding prior year period, while international net revenues
      increased 51% to $14.2 million. Included
      in net revenues for the second quarter of 2006 was $3.9 million of revenues
      related to Intranets. During
      the first six months of 2006, U.S. net revenues were $153.8 million, an increase
      of 20% from the corresponding prior year period, while international net
      revenues increased 55% to $27.5 million. The increase in international revenues
      for the second quarter and first six months of 2006 was due to the Company’s
      increased focus and investment outside of the U.S. Included
      in net revenues for the first six months of 2006 was $7.6 million of revenues
      related to Intranets.





One
      of
      the measurement tools, or metrics, which we use to help forecast future revenues
      is what we refer to as monthly revenue rate (“MRR”). We define MRR as the sum of
      the following: (i) committed monthly subscriptions, or the aggregate dollar
      amount of minimum minutes, named hosts and ports that are contractually
      committed to us, as of the end of the month, and (ii) average monthly
      uncommitted revenue for the quarter, or the aggregate dollar amounts of per
      minute or usage-based services such as reseller-related,





overage,
      telephony and pay-per-use revenues for the quarter; divided by three. Our
      monthly subscription contracts at the end of June 2006 were approximately $23.5
      million and our average monthly-uncommitted revenue in the quarter ended June
      30, 2006 was $8.9 million. Thus our monthly revenue rate exiting June 2006
      was
      $32.4 million .




While
      the
      quarter-exiting MRR is used by us as a forecasting tool for the following
      quarter's revenue, the actual revenue in the next quarter is impacted by other
      factors in addition to the MRR entering that quarter. These factors include
      such
      items as (i) new customer bookings and customer cancellations, and the timing
      of
      each during the quarter, (ii) usage-based revenues, (iii) customer credits,
      (iv)
      set up fees, fees charged for one-time customer events and other non-recurring
      revenues that are not included in MRR and (v) sales reserve adjustments. Certain
      revenue elements not included in MRR have been declining in recent quarters
      due
      to changes in our business practices. For example, due to recent changes in
      our
      sales compensation plans, our sales employees, where permitted to give customer
      discounts, have been more apt than previously to give discounts on the set-up
      fee portion of a customer’s payment obligation and less apt than previously to
      give discounts on the monthly subscription, or MRR, portion of the customer’s
      payment obligation. On the other hand, customer credits, which are among the
      factors outside of MRR that operate to reduce our revenue, have increased in
      recent quarters. Also, quarterly minutes-based subscriptions have been
      increasing. While quarterly or semiannual minutes-based subscriptions are
      included in the subscription portion of MRR, the revenue associated with them
      is
      recognized variably based on usage until the end of the quarterly or semiannual
      billing period .




The
      following table shows our MRR for the eight quarters ended June 30,
      2006:





**June****30,****2006**
            
            
            **March****31,****2006**
            
            
            **December****31,
                2005**
            
            
            **September
                3****0,
                2005**
            
            
            **June****30,****2005**
            
            
            **March****31,
                2005**
            
            
            **December****31,
                2004**
            
            
            **September****30,
                2004****(In
                millions)**Uncommitted
                usage - monthly average during the quarter
            
            $
            8.9
            
            $
            8.7
            
            $
            7.3
            
            $
            7.3
            
            $
            7.7
            
            $
            7.0
            
            $
            6.2
            
            $
            6.0Contracted
                subscriptions at the end of the quarter
            
            
            23.5
            
            
            22.1
            
            
            21.4
            
            
            19.2
            
            
            18.3
            
            
            17.4
            
            
            16.8
            
            
            15.9Total
                MRR
            
            $
            32.4
            
            $
            30.8
            
            $
            28.7
            
            $
            26.5
            
            $
            26.0
            
            $
            24.4
            
            $
            23.0
            
            $
            21.9





We
      use a
      lost subscription customer ratio metric to track what percentage of our
      customers we lose each month. Our
      lost
      customer ratio is based on customer count and is calculated as the quotient
      obtained from the following: (i) the average monthly number of lost customers
      (including customers who have switched their purchases of our services from
      us
      directly to our partners) during the quarter, divided by (ii) our total number
      of customers at the end of the last month of the quarter plus the average
      monthly number of lost customers during the quarter (including customers who
      have switched their purchases of our services from us directly to our partners).
      Our lost subscription customer ratio for the three months ended June 30, 2006
      was 2.4% per month, which includes Intranets beginning in the fourth quarter
      of
      2005. The following table shows our lost customer ratio for the eight quarters
      ended June 30, 2006:





**June****30,**
              **2006**
            **March****31,**
              **2006**
            **December
                31, 2005**
            **September****30,
                2005**
            **June****30,**
              **2005**
            **March****31,**
              **2005**
            **December
                31, 2004**
            **September
                30, 2004**Lost
                subscription customer ratio percentage
            2.4%
            2.2%
            2.2%
            1.9%
            1.9%
            2.0%
            1.9%
            1.3%





The
      increase in the lost subscription customer ratio percentage was due primarily
      to
      the inclusion of Intranets beginning in the fourth quarter of 2005 and the
      associated project based nature of a portion of Intranets business, which is
      focused on the small to medium business market. As projects are completed,
      websites are often cancelled by the customer, although the customer may be
      retained.





***Cost
      of Revenues***





Cost
      of
      revenues consists primarily of costs related to user set-up, network and data
      center operations, technical support and training activities, including Internet
      access and telephony communication costs, personnel, licensed software and
      equipment costs and depreciation. Total cost of revenues for the periods
      reported was as follows:








**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**Cost
                of revenues
            
            $
            17,653
            
            $
            12,804
            
            $
            33,624
            
            $
            24,661Percentage
                of net revenues
            
            
            19
            %
            
            17
            %
            
            19
            %
            
            17
            %Increase,
                period over period
            
            $
            4,849
            
            
            
            
            $
            8,963Percentage
                increase, period over period
            
            
            38
            %
            
            
            
            
            36
            %





Cost
      of
      revenues increased 38% during the second quarter of 2006 and 36% during the
      first six months of 2006 as compared to the corresponding prior year periods.
      Cost of revenues increased during the second quarter and first six months of
      2006 due primarily to $752,000 and $1.5 million, respectively, of stock
      compensation expense related to the adoption of SFAS 123R as well as increases
      in the costs for delivering existing and new services to customers. In addition,
      we increased our technical staff 13% during the second quarter of 2006 as
      compared to the corresponding prior year period to support our installed base
      of
      customers and we increased expenditures to expand and improve our worldwide
      network. We recorded amortization of developed technology related to the
      acquisition of Intranets of $440,000 and $880,000 during the second quarter
      and
      first six months of 2006, respectively.





***Sales
      and Marketing***





Sales
      and
      marketing expense consists of personnel costs, including commissions for sales,
      marketing and customer care, as well as costs of public relations, advertising,
      marketing programs, lead generation, travel and trade shows. Sales and marketing
      expenses for the periods reported were as follows:





**Three
                  months ended**
                **June
                  30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**Sales
                and marketing
            
            $
            34,610
            
            $
            24,745
            
            $
            69,059
            
            $
            48,848Percentage
                of net revenues
            
            
            37
            %
            
            33
            %
            
            38
            %
            
            33
            %Increase,
                period over period
            
            $
            9,865
            
            
            
            
            $
            20,211Percentage
                increase, period over period
            
            
            40
            %
            
            
            
            
            41
            %





Sales
      and
      marketing expense increased 40% during the second quarter of 2006 and 41% during
      the first six months of 2006 as compared to the corresponding prior year
      periods. Sales and marketing expense increased during the second quarter and
      first six months of 2006 due primarily to $2.4
      million and $5.1 million, respectively, of stock compensation expense related
      to
      the adoption of SFAS123R, increased spending on sales and support personnel
      and
      additional spending on advertising and marketing related programs to build
      brand
      awareness and generate leads for our sales force. Sales and marketing headcount
      increased 19% in the second quarter of 2006 as compared to the corresponding
      prior year period. During
      the second quarter and first six months of 2006, we extended our promotion
      of
      existing products and continued to promote our latest product releases,
      including WebOffice, which is intended to expand our offerings in the small
      to
      medium business market, as well as MeetMeNow and PCNow, which are targeted
      to
      individual professionals.





***Research
      and Development***





Research
      and development expense consists primarily of salaries and other
      personnel-related expenses, depreciation of equipment and supplies, and
      consulting engineering services. Research and development expenses for the
      periods reported were as follows:





**Three
                  months ended**
                **June
                  30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**Research
                and development
            
            $
            13,296
            
            $
            10,982
            
            $
            26,802
            
            $
            21,048











Percentage
                of net revenues
            
            
            14
            %
            
            15
            %
            
            15
            %
            
            14
            %Increase,
                period over period
            
            $
            2,314
            
            
            
            
            $
            5,754Percentage
                increase, period over period
            
            
            21
            %
            
            
            
            
            27
            %





Research
      and development expense increased 21% during the second quarter of 2006 and
      27%
      during the first six months of 2006 as compared to the corresponding prior
      year
      periods. Research and development expense increased during the second quarter
      and first six months of 2006 due primarily to $1.6
      million and $3.1 million, respectively, of stock compensation expense related
      to
      the adoption of SFAS123R and increases in equipment related expenses to develop
      and support existing and new products. The increase in research and development
      expense was offset in part by a reduction in headcount of 6% in the second
      quarter of 2006 as compared to the corresponding prior year period.





***General
      and Administrative***





General
      and administrative expense consists primarily of personnel costs for finance,
      human resources, legal and general management, bad debt expense and professional
      services, such as legal, tax and accounting. General and administrative expenses
      for the periods reported were as follows:





**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**General
                and administrative
            
            $
            9,374
            
            $
            5,299
            
            $
            18,948
            
            $
            11,082Percentage
                of net revenues
            
            
            10
            %
            
            7
            %
            
            10
            %
            
            8
            %Increase,
                period over period
            
            $
            4,075
            
            
            
            
            $
            7,866Percentage
                increase, period over period
            
            
            77
            %
            
            
            
            
            71
            %





General
      and administrative expense increased 77% during the second quarter of 2006
      and
      71% during the first six months of 2006 as compared to the corresponding prior
      year periods. General and administrative expense increased during the second
      quarter and first six months of 2006 due primarily to $1.2
      million and $2.8 million, respectively, of stock compensation expense related
      to
      the adoption of SFAS123R as well as increased employee-related expenses, a
      litigation reserve associated with a potential sales tax liability and executive
      severance costs. The increase in employee-related expenses was due primarily
      to
      an increased headcount of 14% in the second quarter of 2006 as compared to
      the
      corresponding prior year period.





***Stock-Based
      Compensation***





The
      stock-based compensation cost was included in the Condensed Consolidated
      Statements of Income corresponding to the same functional lines as cash
      compensation paid to the same employees, as follows:





**Three
                months ended**
              **June
                30,**
            **Six
                months ended**
              **June
                30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005****(Dollars
                in thousands)**Cost
                of revenues
            
            $
            752
            
            $
            —
            
            $
            1,530
            
            $
            —Sales
                and marketing
            
            $
            2,397
            
            $
            —
            
            $
            5,099
            
            $
            —Research
                and development
            
            $
            1,574
            
            $
            —
            
            $
            3,119
            
            $
            —General
                and administrative
            
            $
            1,240
            
            $
            6
            
            $
            2,844
            
            $
            7Stock-based
                compensation
            
            $
            5,963
            
            $
            6
            
            $
            12,592
            
            $
            7Percentage
                of net revenues
            
            
            6
            %
            
            —
            %
            
            7
            %
            
            —
            %





Effective
      January 1, 2006, we adopted the fair value recognition provisions of SFAS123R
      using the modified prospective transition method and therefore have not restated
      results for prior periods. Under this transition method, stock-based
      compensation expense for the second quarter and first six months of 2006
      includes compensation expense for all stock-based compensation awards granted
      prior to, but not yet vested as of January 1, 2006, based on the grant date
      fair value estimated in accordance with the original provision of
      SFAS No. 123. Stock-based compensation expense for all stock-based
      compensation awards granted after January 1,





2006
      is
      based on the grant-date fair value estimated in accordance with the provisions
      of SFAS 123R. Prior to the adoption of SFAS 123R, we recognized
      stock-based compensation expense in accordance with APB 25.





***Interest
      and other income, net***





Interest
      and other income, net consists of net investment income, interest income and
      expense, the effect of non-functional currency transactions of our foreign
      subsidiaries, and certain other expenses. Interest and other income, net
      increased $579,000 and $577,000, respectively, in the second quarter and first
      six months of 2006 as compared to the corresponding prior year periods due
      primarily to an increase in interest income from greater cash and investments
      balances and higher interest rates, offset in part by currency exchange losses
      from transactions in other than the local currency of our foreign subsidiaries.





***Provision
      for income taxes***




We
      recorded a provision for income taxes of $9.3 million for the three months
      ended
      June 30, 2006 and a provision for income taxes of $16.9 million for the six
      months ended June 30, 2006 based on our estimated effective tax rate for full
      year 2006 of 46.1%. Our estimated annual effective tax rate for 2006 is
      approximately 7.4 percentage points higher than 2005 due primarily to the tax
      impact of stock-based compensation under SFAS 123R. With the adoption of SFAS
      123R, the stock-based compensation related to such items as incentive stock
      options and the employee stock purchase plan is treated as a permanent tax
      difference. Therefore, the stock-based compensation is added back to income
      before income taxes for tax purposes and results in a higher effective tax
      rate
      in 2006 as compared to 2005. We expect to continue to use net operating loss
      carryforwards to offset U.S. taxable income in 2006; however, the utilization
      is
      limited on an annual basis based on Section 382 of the Internal Revenue Code.
      For the six months ended June 30, 2006, we evaluated our deferred tax assets
      and
      valuation allowance related to the utilization of our net operating loss
      carryforwards. The evaluation resulted in the realization of the tax benefit
      of
      these deferred assets of $1.8 million for the balance of the year, of which
      $1.6
      million reduced goodwill related to the acquisition of Intranets.





**Liquidity
      and Capital Resources**


**Six
                  months ended**
                **June
                  30,****2006**
            
            
            **2005****(In
                thousands)**Net
                cash provided by operating activities
            
            $
            38,093
            
            $
            35,481Net
                cash used in investing activities
            
            
            (57,115
            )
            
            (68,203
            )Net
                cash provided by financing activities
            
            
            41,150
            
            
            7,432Net
                increase (decrease) in cash and cash equivalents
            
            $
            22,128
            
            $
            (25,290
            )





We
      have
      generated cash from operations in each quarter since the third quarter of 2002.
      We anticipate cash flow from operations will fund our current operations.





As
      of
      June 30, 2006, cash, cash equivalents and short-term investments were $268.9
      million, an increase of $71.6 million compared with cash, cash equivalents
      and
      short-term investments of $197.2 million as of December 31, 2005. As of June
      30,
      2006 and December 31, 2005, we had no debt.





***Operating
      Activities***




Net
      cash
      provided by operating activities increased $2.6 million in the six months ended
      June 30, 2006 as compared to the corresponding period in 2005. The increase
      was
      due primarily to higher earnings of $4.1 million, after adjustments for non-cash
      items including stock compensation expense, provisions for doubtful accounts
      and
      sales reserve and depreciation and amortization. In addition, an increase in
      accrued liabilities of $8.2 million and an increase in deferred revenue of
      $1.1
      million as compared to the corresponding prior year period also contributed
      to
      the increase in cash from operations. The increase in cash from operations
      was
      partially reduced by higher payments for taxes of $14.9 million during 2006
      as
      compared to 2005, an
      increase in accounts receivable of $1.7 million due to
      the revenue growth in the Company and processing delays with our new billing
      provider as well as higher
      payments in accounts payable of $1.2 million due to the timing of payments.
      In
      addition, with the adoption of SFAS 123R, $3.7 million related to excess tax
      benefits from stock-based compensation, which was previously recorded in
      operating activities prior to 2006, was recorded in financing activities.




***Investing
      Activities***





Net
      cash
      used in investing activities decreased $11.1 million in the first six months
      of
      2006 as compared to the corresponding prior year period. The decrease was due
      primarily to a decrease in investment purchases during the first six months
      of
      2006. Capital purchases remained essentially flat at $6.8 million and $7.2
      million in the first six months of 2006 and 2005, respectively.





***Financing
      Activities***





Net
      cash
      provided by financing activities increased $33.7 million in the first six months
      of 2006 as compared to the corresponding prior year period. The increase was
      due
      primarily to proceeds received from issuances of common stock under employee
      stock programs of $37.5 million in the first six months of 2006 as compared
      to
      $19.5 million in the first six months of 2005. In, addition, with the adoption
      of SFAS123R, we recorded $3.7 million of excess tax benefits from stock-based
      compensation in financing activities.





In
      the
      first six months of 2005, we repurchased $12.0 million of common stock under
      our
      $40.0 million authorized repurchase program. We repurchase shares of our common
      stock under a program to manage the dilution created by shares issued under
      employee stock plans as well as to repurchase shares opportunistically. During
      July 2006, our Board of Directors authorized a new share repurchase program,
      which authorizes up to $40.0 million for share repurchases through December
      2007.




***Other***





We
      have a
      revolving credit line with a bank that provides available borrowings up to
      $7.0
      million. Amounts borrowed under the revolving credit line bear interest at
      the
      prime rate and may be repaid and re-borrowed at any time prior to the maturity
      date. The credit agreement expires June 15, 2007. The credit agreement is
      unsecured and is subject to compliance with covenants, including a minimum
      quick
      ratio and minimum profitability, with which we are currently in compliance.
      As
      of June 30, 2006, we had no outstanding borrowings under the credit line, but
      did have $3.5 million in letters of credit issued to secure leases, which
      decline in value over the length of the respective leases.





We
      expect
      that existing cash resources and cash generated from operations will be
      sufficient to fund our anticipated working capital and capital expenditure
      needs
      for at least the next 12 months. We anticipate that we will continue to generate
      cash from operations for at least the next 12 months  and
      that
      existing cash reserves will therefore be sufficient to meet our capital
      requirements during this period. We base our expense levels in part on our
      expectations of future revenue levels. If our revenue for a particular period
      is
      lower than we expect, we may take steps to reduce our operating expenses
      accordingly. If cash generated from operations is insufficient to satisfy our
      liquidity requirements, we may seek to sell additional public or private equity
      securities or obtain additional debt financing. There can be no assurance that
      additional financing will be available at all or, if available, will be
      obtainable on terms favorable to us. If we are unable to obtain additional
      financing, we may be required to reduce the scope of our planned technology
      and
      product development and sales and marketing efforts, which could harm our
      business, financial condition and operating results. Additional financing may
      also be dilutive to our existing stockholders .




***Lease
      Commitments***





We
      lease
      facilities in various U.S. cities and in several non-U.S. countries for
      sales-related activities and, in some cases, to house equipment used in the
      operation of our MediaTone Network. In April 2004, we signed a lease to occupy
      space in a building located in Santa Clara, California that serves as our
      corporate headquarters. The lease term is for approximately ten years, and
      initial occupancy commenced in the third quarter of 2004. We took possession
      of
      additional space in January 2005 and are committed to occupy additional space
      in
      February 2008. The rent for all of this space is included in the future minimum
      rental payments. Minimum lease payments under this lease began in January 2005
      and total an aggregate of $23.8 million for the life of the lease.





***Purchase
      Commitments***





As
      of
      June 30, 2006, our material purchase commitments, including those for
      telecommunication lines and data services, equipment and software and
      construction of leasehold improvements at new leased facilities, totaled $28.4
      million. The
      majority of the purchase commitments are expected to be settled in cash within
      12 months.





***Indemnity
      and Warranty Obligations***




In
      our
      agreements with customers and resellers, we agree to indemnify the customers
      and
      resellers in the event a third party asserts an intellectual property
      infringement claim against the customer or reseller based on our services.
      Certain restrictions are placed on the indemnity obligations, including
      geographical limitations and limitations on the type of claims covered. In
      addition, we





have
      provided certain warranties and committed to maintain certain service levels
      in
      some of our agreements with customers and resellers. These warranty and service
      level provisions specify limited remedies available to the customer or reseller
      in the event of a breach of the warranty or a failure to maintain the specified
      service level. In addition, our agreements contain limitation of liability
      provisions, which disclaim responsibility for consequential, special or indirect
      damages and which generally limit our liability under the agreements to the
      amount of fees paid to us. However, any
      failure in a customer’s business interaction or other communications activity
      that is caused or allegedly caused by our services, could result in a claim
      for
      damages against us, regardless of our responsibility for the failure, and cause
      us to incur unexpected costs which could unfavorably impact our revenue. Although
      customers and resellers have on a few occasions brought to WebEx’s attention
      potential third party intellectual property claims, as of June 30, 2006, we
      had
      not incurred any liability with respect to our indemnification obligations.
      Likewise, customers and resellers may bring claims with respect to our warranty
      and service level obligations, but as of June 30, 2006, we had not incurred
      a
      material liability with respect to such claims





***Off-Balance-Sheet
      Arrangements***





As
      of
      June 30, 2006, we did not have any significant off-balance-sheet arrangements,
      as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





**Long
      Term Contracts**





The
      following table summarizes our significant contractual commitments at June
      30,
      2006, and the effect such obligations are expected to have on our liquidity
      and
      cash flows in future periods:





**Payments
                due by period****Total**
            
            
            **Less
                than 1 year**
            
            
            **1-3
                years**
            
            
            **3-5
                years**
            
            
            **More
                than 5 years****(In
                thousands)**Operating
                lease commitments
            
            $
            41,664
            
            $
            3,345
            
            $
            12,949
            
            $
            11,745
            
            $
            13,625Purchase
                commitments
            
            
            28,409
            
            
            25,839
            
            
            2,533
            
            
            37
            
            
            —Total
            
            $
            70,073
            
            $
            29,184
            
            $
            15,482
            
            $
            11,782
            
            $
            13,625








**Item
      3.** ***Quantitative
      and Qualitative Disclosures About Market Risk***





***Foreign
      Currency Risk***





A
      small,
      but growing, part of our business is conducted outside the United States. In
      the
      majority of non-U.S. transactions, whether they are revenue transactions or
      the
      payment of expenses or other obligations owing in the non-U.S. country, the
      currency involved is the local currency. In some countries we have far more
      sales collections than we do payment obligations; in other countries, the
      reverse is true. For example, in China we have significant payment obligations
      that must be made in Chinese currency including employee salaries and lease
      payments, and these are currently not offset by revenues in China. As a result
      of this imbalance between local currency collections and payments in certain
      non-U.S. countries, our financial results could be affected by factors such
      as
      changes in foreign currency exchange rates or weak economic conditions in such
      foreign markets. When the amount of revenues obtained from sources outside
      the
      United States becomes significant, we may engage in hedging activities or other
      actions to decrease fluctuations in operating results due to changes in foreign
      currency exchange rates.




***Interest
      Rate Risk***





We
      do not
      use derivative financial instruments or market risk sensitive instruments.
      Instead, we invest in highly liquid investments with short maturities.
      Accordingly, we do not expect any material loss from these investments and
      believe that our potential interest rate exposure is not material.








**Item
      4.** ***Controls and Procedures*** ****




(a)
      *Evaluation of disclosure controls and procedures*. We maintain
“disclosure controls and procedures,” as such term is defined in Rule 13a-15(e)
      under the Securities Exchange Act of 1934 (the “Exchange Act”), that are
      designed to ensure that information required to be disclosed by us in reports
      that we file or submit under the Exchange Act is recorded, processed,





summarized,
      and reported within the time periods specified in Securities and Exchange
      Commission rules and forms, and that such information is accumulated and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding required
      disclosure. In designing and evaluating our disclosure controls and procedures,
      management recognized that disclosure controls and procedures, no matter how
      well conceived and operated, can provide only reasonable, not absolute,
      assurance that the objectives of the disclosure controls and procedures are
      met.
      Additionally, in designing disclosure controls and procedures, our management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible disclosure controls and procedures. The design of
      any
      disclosure controls and procedures also is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions.





Based
      on
      their evaluation as the end of the period covered by this Quarterly Report
      on
      Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
      concluded that, as of such date, our disclosure controls and procedures were
      effective at the reasonable assurance level.





(b)
      *Changes in internal control over financial reporting.* There was no
      significant change in our internal control over financial reporting (as defined
      in Rule 13a-15(f) under the Exchange Act) identified in connection with the
      evaluation described in Item 4(a) above that occurred during our last fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.

















**PART
      II — OTHER INFORMATION**





**Item
      1.** ***Legal
      Proceedings***





On
      March
      27, 2006, a lawsuit was filed in the United States District Court for the
      Southern District of Texas by Automated Business Companies against a number
      of
      companies, including us, alleging that the defendants’ services which “enable
      individuals to remotely control their personal computers” infringe three of the
      plaintiff’s patents.  The plaintiff Automated Business Companies seeks
      damages and injunctive relief. We believe that the claims being asserted in
      the
      lawsuit are without merit and that we have meritorious defenses against such
      claims. Accordingly, we intend to vigorously defend ourselves against these
      claims.








**Item
      1A.** ***Risk
      Factors***





The
      following risk factors and other information included in this Quarterly Report
      should be carefully considered. The risks and uncertainties described below
      are
      not the only ones we face. Additional risks and uncertainties not presently
      known to us or that we deem immaterial also may impair our business operations.
      If any of the following risks occur, our business, financial condition,
      operating results, and cash flows could be materially adversely affected.








*The
      revenue uncertainty associated with one of our two primary pricing models,
      usage-based pricing, makes our quarterly results variable and difficult to
      predict, which could cause unpredictable fluctuations in our stock price.*




We
      use
      two primary pricing models to price our services: a committed-subscription
      pricing model and a usage-based pricing model. Each pricing model is responsible
      for a significant percentage of our total revenue. Because the usage-based
      portion of our revenue varies depending on customer usage, it is more difficult
      to predict than our subscription-based pricing and therefore our revenue may
      fluctuate unpredictably from publicly-announced targets, which in turn could
      cause our stock price to fluctuate unpredictably.




Our
      dominant pricing model has been a
      committed-subscription pricing model. We offer several forms of
      committed-subscription pricing:





-
            “Flat
                rate” pricing, in which the customer pays a set price per month regardless
                of usage. A majority of our committed-subscription customers purchase
                our
                services in this manner;




-
            “Concurrent-user”
                or “per port” pricing, which enables a customer to have a set number of
                users connected to WebEx meetings at any one time;
                and




-
            “Minimum
                minutes” pricing, in which the customer commits to pay for a certain
                number of minutes of usage during a specified time period.




We
      refer
      to the revenue associated with our various committed subscription arrangements
      as committed revenue.





Currently,
      our most popular flat-rate offering is the named host offering, in which a
      certain named individual may host meetings at which up to a certain number
      of
      attendees may participate. The
      named
      host service differs from the concurrent-user port offering in several respects:
      (i) with the concurrent user offering, any employee of the customer may host
      a
      meeting, whereas with the named host service only employees who are designated
      as named hosts may host a meeting, (ii) the price charged for a named host
      subscription is appreciably lower than the price charged for a concurrent user
      subscription, in part because the named host model is less flexible with respect
      to who can host a meeting, and (iii) unlike the concurrent user offering, with
      the named host offering there are effectively no overage fees. We also offer
      a
      full-deployment offering in which all employees within a company can utilize
      WebEx meeting services for a flat monthly rate. During
      the fourth quarter of 2005 we introduced two new flat-rate offerings targeted
      at
      individuals and small businesses. The first offering, available for purchase
      online and called MeetMeNow, is a simple web conferencing service offered on
      a
      monthly basis. The second flat-rate offering is our WebEx WebOffice line of
      collaboration services, which we offer for purchase through a variety of monthly
      subscription plans.










In
      addition to our committed subscription offerings, there are several situations
      in which customers are charged per minute or usage-based pricing. These include
      certain reseller arrangements, customer overage fees for usage above the
      subscribed-to amount of ports or minutes, many types of telephony charges,
      individual pay-per-use services purchased directly from our website, and a
      limited number of customers who do not have a minimum commitment obligation
      of
      any kind. A majority of revenue received from our telecommunications partner
      arrangements is usage based. In addition, we sometimes obtain usage-based fees
      from subscription customers in the form of overage fees. Overage fees are
      charged when a customer subscribing to a set number of ports uses more than
      the
      subscribed number of ports, or when a customer on a minutes pricing model uses
      more than its commitment. We get per-minute telephony revenue when we provide
      the audio conferencing component of a web collaboration session. Finally, we
      have per-minute web collaboration services
      available through our website and payable by credit card. We refer to the
      revenue derived from this per minute or usage-based pricing model, measured
      as
      of the end of any month, as uncommitted revenue .




For
      the
      quarter ended June 30, 2006, usage-based revenue was approximately 27% of our
      total revenue. The various usage-based revenue sources are more variable and
      difficult to predict than our committed subscription revenue sources, given
      that
      customer demand may vary from month to month depending on a number of factors,
      such as number of business days in a month or vacation patterns. Accordingly,
      to
      the extent the revenue derived from our various usage-based sources—or
      uncommitted revenue—grows faster than the combined revenue from ports, minimum
      minutes and flat-rate offerings—together called committed revenue—our overall
      revenue becomes more difficult to predict.








*There
      are factors other than usage-based pricing--some within and some not within
      our
      control--that make our quarterly results variable and difficult to predict,
      which could cause unpredictable fluctuations in our stock price.*




For
      several additional reasons, some inside and some outside of our control, our
      quarterly revenue and operating results may fluctuate from quarter to quarter
      and may vary from publicly-announced quarterly or annual financial guidance.
      These additional factors include the emerging nature of the market for web
      collaboration services, fluctuations in sales and customer retention and the
      uncertain impact of competition, which are listed below along with several
      other
      factors which could cause our quarterly results to fluctuate
      unpredictably:




Factors
      outside our control include:




-
            the
                emerging nature of the market for, and the growth rate of, the market
                for
                web collaboration software and services generally and particularly
                for
                on-demand web collaboration services;




-
            market
                acceptance of our services;




-
            our
                resellers’ degree of success in distributing our services to end-users;




-
            the
                announcement, introduction and market acceptance of new or enhanced
                services or products by our competitors;




-
            changes
                in offerings, sourcing or pricing policies of our competitors and
                our
                distributors; and




-
            a
                trend toward lower average per-minute prices in the telecommunications
                sector generally.




Factors
      within our control include:




-
            our
                ability to develop, enhance and maintain our web communications network
                in
                a timely manner;




-
            the
                mix of web collaboration services we offer, and our introduction
                of
                asynchronous web collaboration services;




-
            our
                ability to attract and retain customers;




-
            the
                amount and timing of operating costs and capital expenditures relating
                to
                expansion of our business and network infrastructure; and




-
            changes
                in our pricing policies.








If
      any of
      these factors impact our business in an unplanned and negative manner during
      a
      particular period, our operating results may be below market expectations,
      in
      which case the market price of our common stock would likely decline. Also,
      factors such as the growth rate of the market for our services, our ability
      to
      maintain and enhance our network services and platform, and our competitors’
success could impact our longer-term financial performance by reducing demand
      for our services, which would harm our business.







*One
      of our subscription-based offerings, the named host offering, is the choice
      of
      an increasing percentage of our subscription-based customers, both new and
      existing, because of its lower price relative to our other committed
      subscription offerings. This customer purchasing trend could reduce our revenue
      unless and until the volume of additional customers makes up the difference.*




A
      number
      of our new and existing customers are selecting our named host offering.
      Approximately 89% of our new subscription-based agreements entered into during
      the second quarter of 2006 were named host agreements, and approximately 55%
      of
      our current subscription-based agreements are named host agreements. Because
      the
      amount we charge for a named host is less than the amount we charge for a
      concurrent user, we may get less revenue from customers who select the named
      host pricing model than we have historically from our concurrent user customers.
      In addition, we generally do not receive overage revenue under the named host
      model. This loss of subscription and overage revenue may be offset in the future
      if named host customers increase the number of named hosts they subscribe to
      or
      if the number of customers increases due to the availability of this
      lower-priced model. If neither of these trends occurs, our operating results
      will be negatively affected .








*We
      expect that our operating expenses will continue to increase, and if our revenue
      does not correspondingly increase, our business and operating results will
      suffer.*




We
      expect
      to continue to spend substantial financial and other resources on developing
      and
      introducing new services, on expanding our sales and marketing organization,
      on
      enhancing our network infrastructure and on upgrading leased facilities such
      as
      our European headquarters. An example of a substantial financial commitment
      made
      during the past two years is our ten-year lease for space in a Santa Clara,
      California building which became our corporate headquarters in January 2005.
      We
      base our expansion plans and expense levels in part on our expectations of
      future revenue levels. If our revenue for a particular quarter is lower than
      we
      expect, we may be unable to reduce, proportionately, our operating expenses
      for
      that quarter, in which case our operating results for that quarter would suffer.
      And because our fixed expenses have increased appreciably due to our
      expectations relating to future revenue levels, if our revenue is sufficiently
      below expectation in one or more quarters, we may be unable to effect
      proportionate reductions in our operating expenses in a timely manner and,
      therefore, our operating results could suffer.







*Most
      of our customers do not have long-term obligations to purchase our services;
      therefore, our revenue and operating results could decline if our customers
      do
      not continue to use our services.*




Most
      of
      our customer contracts have initial terms of three to twelve months. These
      contracts are typically automatically renewed except where a customer takes
      action to cancel a contract prior to the end of an initial or renewal term.
      In a
      few customer situations, including contracts with the federal government, the
      contract can be terminated by the customer at any time during the term of the
      agreement. Our lost subscription customer ratio was 2.4% for the quarter ended June
      30 ,
      2006.
      In addition to cancellation, a customer may stop buying our services directly
      from us and, instead, start purchasing our services from one of our resellers.
      A
      customer may also change types of services that the customer purchases directly
      from us such that the overall subscription revenue to us is lower. The
      reasons why a customer would cancel use of our services have included the
      pricing of our service offerings, the failure of the customer’s employees to
      learn about and use our services, the failure of the services to meet the
      customer’s expectations or requirements, financial difficulties experienced by
      the customer, or the customer’s decision to use services or products offered by
      a competitor. As a result of customer cancellations or reductions in purchases
      of our services, we may need to invest additional dollars in sales and marketing
      in order to compensate for increases in net customer losses, or we may need
      to
      invest in the development or acquisition of new offerings in an attempt to
      increase customer retention. We may not obtain a sufficient amount of new or
      incremental business to compensate for any customers that we may lose. The
      loss
      of existing customers or our failure to obtain additional customers, and the
      additional expense associated with acquiring new customers or developing or
      acquiring new products, could harm our business and operating results.










*Our
      business and operating results may suffer if we fail to establish reseller
      relationships, if our resellers experience financial hardships, do not
      successfully market and sell our services, or devote greater efforts to the
      products and services of competitors, or if we fail to become a significant
      participant in the telecommunications provider distribution channel.*




As
      of
      June 30, 2006, we had distribution agreements in place with telecommunications
      partners, software vendors, web services providers and miscellaneous other
      resellers that during the second quarter of 2006 accounted for 14% of our
      revenue. Our revenue generally consists of initial set-up fees, commitment
      payments, and service fees. The majority of the payments received from these
      resellers are per minute or usage-based payments. We must continue to establish
      and extend these distribution relationships. Establishing these distribution
      relationships can take as long as several months or more. It typically also
      takes several months before our distribution arrangements generate significant
      revenue. Our resellers are not prohibited from offering and reselling the
      products and services of our competitors, and a significant majority of our
      resellers currently do so. Such resellers (i) may devote greater resources
      to
      marketing and supporting the products and services of our competitors including
      specific efforts to persuade the reseller’s customers to switch from our
      services to those of our competitors, or (ii) may be persuaded by a competitor
      of ours to sever the reseller’s distribution arrangement with us and possibly
      also become the exclusive reseller of that competitor. An example of a reseller
      which may devote greater resources to marketing and supporting the products
      and
      services of our competitors is our distributor Intercall, whose
      corporate parent West Corporation in April 2006 acquired our competitor
      Raindance and who therefore may increase its support of the Raindance offering,
      or cease offering some or all of our offerings, to our detriment. With
      regard to the telecommunications-provider distribution channel for web
      collaboration services which may prove economically significant in the future,
      our web collaboration services competitors may be more successful in partnering
      with telecommunications providers, or telecommunications providers may
      independently enter the web collaboration services business, either alone or
      with web conferencing vendors that do not include us. If we fail to establish
      new distribution relationships in a timely manner, if our resellers do not
      successfully distribute our services, if we lose existing resellers for whatever
      reason or if we fail to become a significant participant in the
      telecommunications-provider distribution channel, our ability to maintain
      current levels of market acceptance of our web collaboration services will
      suffer and our business and operating results will be harmed.







*A
      small number of resellers is responsible for most of the 14% of our total
      revenue that is attributable to resellers, and if any of these resellers
      discontinues or significantly curtails a reseller arrangement with us, our
      operating results would be negatively affected.* **




Of
      the
      14% of our total second quarter revenue that is attributable to resellers,
      a
      large majority comes from four resellers. Each of these four resellers operates
      in the telecommunications-provider reseller channel. If one or more of these
      resellers were to significantly reduce the scope of or discontinue a reseller
      arrangement with us, our business and operating results would suffer.







*Our
      total revenue may suffer if we are unable to manage our distribution
      relationships successfully to prevent the undercutting of our direct sales
      efforts.* **




We
      sell
      our services directly to customers and also indirectly through our resellers
      which buy and resell our services. We enter into distribution relationships
      so
      that we can obtain additional customers through third parties that we could
      not
      obtain through our direct sales efforts. Under our agreements with our
      resellers, we sell our services on a discounted basis to the reseller, which
      in
      turn marks up the price and sells the services to the end-user. In such cases,
      we contract directly with the reseller, and revenue is recognized on amounts
      charged to the reseller. We
      also
      have another type of distribution arrangement—known as a referral arrangement—in
      which a third party refers a potential customer to our direct sales force,
      which
      in turn seeks to enter into a contract directly with the potential customer.
      When a sale is made from us to a customer through a lead provided by a referral
      agent, the referral agent receives from us a
      percentage of the proceeds from the sale of WebEx services to the customer,
      we
      include the revenue received by us within the broad category of revenue received
      from services sold directly to customers, and we record the amount paid to
      the
      referral agent as sales and marketing expense. In either the reseller or
      referral agent case, the income per sale received by us when a sale is generated
      by a third party is not as great as it would have been had the sale been made
      by
      us directly, for the same volume of WebEx services. To the extent that sales
      of
      our services generated by our resellers or referral agents are sales that,
      absent the existence of the distribution arrangement, would be made by our
      direct sales force, our income per sale may decrease. Additionally, to the
      extent our existing customers discontinue direct agreements with us in order
      to
      purchase our services from our resellers or through our referral agents, our
      income per sale may decrease.







*We
      expect to depend on sales of our standalone WebEx Meeting Center service for
      a
      significant percentage of our revenue for the foreseeable future.*




Our
      standalone WebEx Meeting Center service, our service with the highest revenue,
      accounted for approximately 34% of our revenue for the quarter ended June 30,
      2006. We have developed and are selling other services, such as our Event
      Center, Training Center, Sales Center, Support Center (including components
      WebEx Remote Support, WebEx Remote Access, and WebEx System Management),
      Enterprise Edition, our MeetMeNow service, our PCNow service, and our various
      add-ons such as our audio conferencing service. Our services other than Meeting
      Center may not provide significant revenue in the future. If we are not
      successful in developing, deploying and selling services other than our
      standalone Meeting Center service, and if sales of our standalone Meeting Center
      service decline or do not increase, our operating results will suffer.







*We
      have modified our business strategy from a focus on web meetings to a more
      diverse product line of web collaboration services, and if our investments
      in
      these new markets are not well targeted or well executed, if overall market
      growth in these new segments is less than anticipated or if we are unable to
      compete successfully in these new market segments, our operating results could
      suffer.*




Our
      business strategy has shifted from a focus on real-time web meetings and
      closely-related applications to an emphasis on a more diverse product line
      of
      web collaboration services, including the asynchronous collaborative service
      offerings we now offer as a result of our acquisition of Intranets. We are
      also
      expanding service offerings such as remote access, instant messaging and audio
      conferencing. This product diversification strategy includes a greater emphasis
      on selling services provided by, or obtained through acquisition of, third
      parties rather than our historical practice of selling services developed solely
      by us. Because the markets for certain of these web collaboration services,
      such
      the asynchronous web collaboration services market, are just emerging, it is
      uncertain how successful WebEx will be in these markets. We are also uncertain
      how much investment in sales, marketing, product development and infrastructure
      will be necessary to compete successfully in these markets, since we are a
      relatively new participant to these markets. If our investments in these new
      markets do not produce or exceed our expected return, our financial results
      will
      suffer .
      Also,
      to the extent we expand our service offerings to include those offerings, such
      as audio conferencing, which currently or may in the future have lower profit
      margins than our traditional web collaboration service offerings, our operating
      and profit margins may decline.








*If
      our marketing, branding and lead-generation efforts are not successful, or
      if
      our decision to shift resources to sales and marketing from research and
      development causes service quality problems or delays in the rollout of new
      services or service upgrades, our business may be harmed.*




We
      believe that continued marketing and brand recognition efforts will be critical
      to achieve widespread acceptance of our web collaboration services. In the
      current calendar year, we intend to invest more of our budget on sales and
      marketing and to reduce the percentage of our budget spent on research and
      development. Nevertheless, our marketing and advertising campaigns or branding
      efforts may not be successful. For example, certain sales promotion initiatives,
      such as free introductory or free trial use, may dampen short-term sales even
      as
      such initiatives attempt to cultivate participants’ desire to purchase and use
      our services, in that a customer who might have otherwise purchased our services
      will instead receive free use of our services for the trial period of time.
      In
      addition, failure to adequately generate and develop sales leads could
      negatively impact our revenue and therefore our financial results. More
      specifically, our inability to generate and cultivate sales leads into large
      organizations, where there is the potential for significant use of our services
      and where any future marketplace standardization of our service might emerge,
      could harm our business. If our marketing, branding or lead-generation efforts
      are not successful, or if a shift in resource emphasis from research and
      development to sales and marketing causes a decline in the quality of services
      delivered or delays in the deployment of new or upgraded services, our business
      and operating results will be harmed.







*If
      our services fail to function, whether because of the large number of
      participants or because of separate quality-related issues, we may lose
      customers and our business and reputation may be harmed.*




Our
      business strategy requires that our services be able to accommodate large
      numbers of meetings and users at any one time. Our data network monitoring
      system measures the capacity of our data network by bandwidth use. The goal
      of
      our data network capacity planning is to have our average daily peak usage
      be
      less than 50% of our data network capacity. From time to time daily peak usage
      exceeds 50% of data network capacity. However, by monitoring and managing our
      data network resources we have been





able
      to
      meet our internal goal of maintaining average daily peak usage at less than
      50%
      of our data network capacity. Whenever average daily peak usage increases to
      a
      point approaching or exceeding 50% of our data network capacity, we add capacity
      so that we continue to meet our internal target of having average daily peak
      usage be less than 50% of our data network capacity. During the quarter ended
      June 30, 2006, the average of our daily peak usages, as a percentage of our
      data
      network capacity, was less than 50% of our total capacity.





In
      addition to our data network, we also maintain an integrated telephony network
      for which capacity planning and service-level monitoring is necessary. Meeting
      our goal of having average daily peak usage be less than 50% of our network
      capacity depends on our continuing ability to add both data network and
      telephony network capacity whenever we so desire. Securing such additional
      network capacity has not been a problem for us to date, due to the abundance
      of
      supply available for purchase. However, there can be no assurance that such
      supply of data network and telephony network capacity will always be available
      or available at reasonable prices.





If
      we
      fail to invest adequately to increase the capacity and quality of our data
      and
      telephony networks consistent with the growth in usage of each, or if there
      are
      supply constraints with respect to the acquisition of additional data network
      or
      telephony capacity, the performance of these networks could be adversely
      impacted. In addition, we may encounter performance or other service-quality
      problems when making upgrades and modifications to either or both of these
      networks. If our services do not perform adequately because of capacity-related
      or other quality-related problems with either or both of our data and telephony
      networks, we may lose customers and be unable to attract new customers and
      our
      operating results would be harmed.







*We
      operate a subsidiary in China, which exposes us to economic and political risks
      in China, foreign exchange risk, risks related to political tension between
      China and the United States, risks arising from an inability to enforce our
      intellectual property rights, and risks relating to possible Chinese government
      requirements or activities affecting our customers located in China.*




We
      have
      relied, and for the foreseeable future we plan to continue to rely, on our
      subsidiary WebEx China to conduct a significant portion of our quality assurance
      testing and software development activities, as well other activities. Our
      reliance on WebEx China exposes us to a variety of economic and political risks
      including, but not limited to, technology-development restrictions, potentially
      costly and pro-employee labor laws and regulations governing our employees
      in
      China, and travel restrictions. Also, our business may be harmed if we encounter
      difficulties enforcing our intellectual property rights there.




We
      also
      face foreign exchange risk in that we have significant payment obligations
      that
      must be made in Chinese currency including employee salaries and lease payments,
      which currently and for the foreseeable future are currently not offset by
      sales
      revenue in China. If the Chinese currency, or yuan, appreciates relative to
      the
      U.S. dollar, the cost of our Chinese operations, as reflected in our financial
      statements, would increase.




In
      addition, we face risks related to possible Chinese government requirements
      or
      activities affecting customers of WebEx located in China. As evidenced by recent
      publicized issues involving U.S. Internet technology companies in China, the
      Chinese government may require, as a condition of doing business in China,
      that
      WebEx provide information related to users of our services located in China
      or
      may otherwise seek to obtain information related to users of our services in
      China. Although we are not currently aware of any such activity or requirement,
      if such activities or requirements were to occur, this could harm our
      reputation, cause us to lose customers in China and could deter potential future
      customers in China from signing up for our services which would damage our
      operating results.





Finally,
      political and economic tensions between the United States and China could harm
      our ability to conduct operations in China, which could increase our operating
      costs and harm our business and operations. If we lost the services of our
      WebEx
      China subsidiary, we would incur increased costs, which would harm our operating
      results and business.








*Our
      international business activities expose us to foreign exchange risk, foreign
      country economic conditions and the challenges of managing a global business
      operation, any of which if not managed successfully could harm our financial
      condition.* **




A
      small
      part of our sales and support activities, and a significant portion of our
      customer provisioning and research and development activities, are conducted
      outside of the United States. Customer payments to us, and payments by us to
      both our foreign-based vendors and to our foreign-based employees, are generally
      made in the local currency. As a result, our financial results could be affected
      by factors such as changes in foreign currency exchange rates or weak economic
      conditions in foreign markets. We do not





currently
      engage in hedging activities or other actions to decrease fluctuations in
      operating results due to changes in foreign currency exchange rates, although
      we
      may do so when the amount of revenue obtained from sources outside the United
      States becomes significant. We
      conduct sales, marketing, network and customer support operations in countries
      outside of the United States, and we currently have subsidiaries in several
      non-U.S. countries. Our future results could be materially adversely affected
      by
      a variety of challenges generally associated with managing a global business
      including, among others, the following:




-
            staffing
                and managing international operations including multiple non-U.S.
                subsidiary structures;




-
            handling
                the various accounting, tax and legal complexities arising from our
                international operations;




-
            properly
                designing, testing andmaintaining
                internal controls over financial reporting in our non-U.S. subsidiaries,
                as required under the Sarbanes-Oxley Act of 2002 and related laws
                and
                regulations;




-
            understanding
                cultural differences affecting non-U.S. employee relations or sales
                transactions;
                and




-
            addressing
                political, economic or social instabilities that may arise from time
                to
                time in a specific non-U.S. country or
                region.




The
      cost
      of meeting these and other challenges, or our failure to address adequately
      one
      or more of such challenges, could have a material adverse impact on our costs,
      expenses, and financial condition .








*We
      could incur unexpected costs resulting from claims relating to use of our
      services.*




Many
      of
      the business interactions supported by our services are critical to our
      customers’ businesses. Although it is not standard practice for us to do so, in
      some situations we do make warranties in our customer agreements as to service
      uptime, or the percentage of time that our network will be operational and
      available for customer use. Accordingly, any failure by us to fulfill such
      warranty obligation, or more generally any failure in a customer’s business
      interaction or other communications activity that is caused or allegedly caused
      by our services, could result in a claim for damages against us, regardless
      of
      our responsibility for the failure, and cause us to incur unexpected costs
      which
      could unfavorably impact our revenue. The risk of service-related failures
      and
      claims may increase as we launch additional new services, including services
      developed by third parties. Moreover, as certain of our recent and planned
      service offerings, such as our WebOffice service and our planned
      network-based-recording (NBR) offering, include storage of potentially sensitive
      customer content on our network as part of the service offering, this may
      increase the potential for claims and liability associated with that stored
      content.







*The
      software underlying our services is complex, and our business and reputation
      could suffer if our services fail to perform properly due to defects or similar
      problems with our underlying software.*




Complex
      software, such as the software underlying our services, often contains defects.
      We may be forced to delay commercial release of new services or new versions
      of
      existing services until problems are corrected and, in some cases, we may need
      to implement enhancements to correct defects or bugs that we do not detect
      until
      after deployment of our services. If we do detect a defect or bug in our
      software before we introduce new versions of our services, we might have to
      limit our services for an extended period of time while we resolve the problem.
      In addition, problems with the software underlying our services could result
      in:




-
            damage
                to our reputation;




-
            damage
                to our efforts to build brand awareness;




-
            loss
                of customers, or loss of or delay in revenue;




-
            delays
                in or loss of market acceptance of our services; and




-
            unexpected
                expenses and diversion of resources to remedy errors.







*If
      our services do not work with the many hardware and software platforms used
      by
      our customers and end-users, or if we do not successfully adapt our MediaTone
      on-demand delivery platform to the increasing numbers of customers and varieties
      of web collaboration services we are developing, our business may be harmed.*




We
      currently serve customers and end-users that use a wide variety of constantly
      changing hardware and software applications and platforms. If our services
      are
      unable to support these platforms, they may fail to gain broad market
      acceptance, which would cause our operating results to suffer. Our success
      also
      depends on our ability to deliver our services to multiple platforms and
      systems, to modify our services and underlying technology as new versions of
      applications are introduced, and to manage our MediaTone platform such that
      it
      is able to handle the increasing scale and diversity of our on-demand
      collaboration services. In addition, the success of our services depends on
      our
      ability to anticipate and support new standards, especially web standards.
      If we
      fail to maintain the capacity and quality of our MediaTone network across a
      wide
      variety of user computer platforms, or fail in our efforts to utilize the
      MediaTone network to support new web collaboration services, our business will
      suffer.







*We
      rely on third parties for technologies we use in conducting our business, and
      in
      certain cases we rely on third parties to provide us with products we include
      in
      our set of commercial offerings. If we cannot continue to license these
      third-party technologies or products in a timely manner and on commercially
      reasonable terms, our business could suffer.*




We
      intend
      to continue to license technologies from third parties, which are integrated
      into our services and which constitute new web collaboration services. For
      example, we license database, operating system, server and enterprise marketing
      automation software, application server, monitoring and management software,
      billing software, font-rendering technology, voice-over-Internet protocol (VOIP)
      technology, and credit card payment processing services. As our sales volume,
      together with the scale and variety of our collaborative service offerings,
      grows larger, managing these third-party relationships and integrating the
      licensed technologies into our services, into our service delivery
      infrastructure and into our sales and marketing operations has become more
      important to the health of our business. If we are unable to meet the challenges
      associated with these more numerous and complex relationships with third-party
      providers, our business could suffer. Also, we are now relying on third parties
      to supply us with certain of our web collaboration services themselves, such
      as
      the System Management service that is a new offering within the Support Center
      family of services. These product-related third-party technologies, and any
      that
      we may utilize in the future, may not continue to be available to us on
      commercially reasonable terms. In addition, we may fail to successfully
      integrate any licensed technology or licensed product into our MediaTone service
      delivery platform. This in turn could increase our costs and harm our business
      and operating results .







*Our
      recent growth has placed a strain on our infrastructure and resources, and
      if we
      fail to adequately manage the infrastructure and operational requirements of
      our
      business as it grows, both within the U.S. and internationally, our business
      could suffer.*




We
      have
      experienced a period of expansion in our personnel, facilities, and
      infrastructure that has placed a significant strain on our resources. We expect
      to continue to increase our personnel during the remainder of 2006. Our
      expansion has also placed, and we expect that it will continue to place, a
      significant strain on our management and operational resources. In addition
      to
      completing the physical transfer of one of our primary network operations
      centers from our former San Jose headquarters to a facility in Mountain View,
      California, we are exploring the option of transitioning another of our network
      operations centers from a Denver, Colorado facility to an alternative facility,
      although we have not yet identified the location of such alternative facility.





Separately,
      we are continuing periodically to update our information technology
      infrastructure to meet increased requirements for capacity, flexibility and
      efficiency resulting from the growth of our business. In the event these
      recently re-deployed or recently-updated systems or technologies do not meet
      our
      requirements or are not deployed in a successful or timely manner, our business
      may suffer.







*Breaches
      of our physical or technical security systems, or the security systems of our
      vendors who partner with us in the delivery of services to customers, may result
      in violations of our confidentiality and security obligations to our customers,
      may result in damage to our systems and our reputation, may endanger the safety
      of our employees and may harm our financial performance.*





Our
      customers and end-users may use our services to share confidential and sensitive
      information, the security of which is critical to their business. Third parties
      may attempt to breach our security or the security of our vendors or customers.
      For example, although we are not aware of any breaches to the security of our
      primary service delivery infrastructure or our primary web collaboration service
      offerings, we have faced from time to time multiple ancillary security-related
      issues such as credit card payment





verification
      problems, abuse of free trial offerings made available on our public website,
      and theft of audio-conferencing services by non-contracted parties.





We
      may be
      liable to our customers for any breach in security, and any breach could harm
      our reputation and cause us to lose customers or incur additional expenses,
      or
      both. For example, in connection with customer purchases of our services and
      with the help of an outside vendor, we process tens of thousands of credit
      card
      transactions per month, and any failure in either our or the vendor’s security
      system to safeguard customer information could result in violations of law
      or
      industry standards by us, damage to our customers or damage to our financial
      performance or reputation.





In
      addition, computers are vulnerable to computer viruses, physical or electronic
      break-ins and similar disruptions, which could lead to interruptions, delays
      or
      loss of data. A breach of the physical security of our facilities may endanger
      the safety of our employees. We may be required to expend significant capital
      and other resources to further protect against security breaches or to resolve
      problems caused by any breach, including litigation-related expenses if we
      are
      sued .






*Changes
      in our executive management team may be disruptive to our
      business.*





From
      time
      to time there are changes in our executive management team, including the hiring
      and departure of executives, and the reorganization of responsibilities and
      personnel. For example, during the first quarter of 2006 we had a reorganization
      affecting the leadership of our sales and customer care organization, our
      product and engineering organization and our marketing organization, which
      are
      important areas of our business. In addition, our president and chief operating
      officer left the Company in the second quarter of 2006. Such changes may be
      disruptive to our business, because the executives and employees reporting
      to
      them require time to become fully productive in their new roles and new
      organizations. Planned changes in the Company’s organization or management may
      not achieve the expected benefits. In addition, the departure of executives
      may
      create temporary voids in leadership in critical areas of the Company. Because
      of these risks, organizational and management changes may have an adverse impact
      on our financial performance. We do not have long-term employment agreements
      or
      life insurance policies on any of our senior executives.






*If
      we
      are unable to attract, integrate and retain qualified personnel, our business
      could suffer.*





Our
      future success will depend on our ability to attract, train, retain and motivate
      highly skilled engineering, technical, managerial, sales and marketing and
      customer support personnel. We expect to continue to increase our personnel
      during the remainder of 2006. Demand for skilled engineering and other technical
      personnel continues to be high among companies in the technology sector of
      the
      U.S. economy and particularly in the Silicon Valley, and because of this we
      could encounter increasing difficulty hiring qualified personnel. We could
      encounter the same difficulty in other countries and regions where we operate
      and where the demand for skilled technology workers is growing quite rapidly,
      such as in China and India where we have experienced a significant degree of
      salary pressure and turnover in our workforce. If we encounter difficulty
      hiring, integrating and retaining a sufficient number of qualified personnel
      in
      the future, the quality of our web collaboration services and our ability to
      develop new services, obtain new customers, achieve revenue growth goals and
      provide a high level of customer service could all suffer, and consequently
      the
      health of our overall business could suffer. If in our hiring we hire employees
      from our competitors, we face a risk that a competitor may claim that we have
      engaged in unfair hiring practices, which could cause us to incur costs in
      defending ourselves against such claims, regardless of their merits. Also,
      our
      competitors appear to value certain specialized skills possessed by certain
      of
      our technical and sales employees, having hired or attempted to hire such
      individuals in recent quarters. If the rate at which such employees are hired
      away increases appreciably, our business and operations could be harmed.







*Interruption
      or malfunction of our internal business processing systems, including those
      resulting from upgrades to our comprehensive database system, or problems
      relating to our use of a third party service to assist us with certain billing
      tasks, could result in customer invoicing delays and other disruptions to our
      revenue-related financial accounting processes* *.*




Our
      business, which includes thousands of subscription customers and a large number
      of daily transactions, is substantially dependent on the continuous and
      error-free functioning of our automated business processing systems covering
      such areas as order-entry, billing, contract management and collection
      activities. We currently are utilizing, in part, an internally-developed,
      proprietary business processing system to capture and record customer usage
      of
      our various services. Because
      we have to rely on our own know-how and experience, rather than that of an
      outside vendor, to identify, diagnose and repair any bugs,
      start-up problems or other malfunctions relating to the system, any such
      malfunction could cause delays or errors in transaction processing, which could





negatively
      affect customer relationships and could harm our business .
      Actual
      malfunction-related costs that could have negative effects on our business
      include (i) delays in generating, or inability to generate, customer invoices,
      (ii) difficulty, or inability, to track the customer usage data needed to
      generate invoices, (iii) our having to deploy additional resources internally
      to
      troubleshoot these invoice and data collection problems and to complete the
      processing of sales transactions, and (iv) our having to issue credits to
      customers due to discrepancies or disagreements with particular invoices.





During
      the first quarter of 2006 we completed the installation of a key upgrade to
      the
      application we use for financial reporting, human resource management and other
      enterprise resource planning functions. During the remainder of 2006 we plan
      to
      install upgrades to other portions of the application. In addition, we are
      utilizing a third party billing service to assist us in the preparation and
      transmission of invoices to customers. Any
      material interruption or malfunction associated with the installation of these
      upgrades, or the functioning of our third party billing service arrangement,
      could result in billing,
      collection, credit-issuance and other revenue-related financial accounting
      problems. Such interruptions or malfunctions, were they to become persistent
      or
      large-scale, could harm our customer relationships. In addition, such
      interruptions or malfunctions could interfere with the accuracy of our
      financial reporting and could disrupt related internal control compliance
      activities, which could result in our violating legal requirements applicable
      to
      public companies. Any such result could harm our business and stock
      price .







*Interruptions
      in either our internal or outsourced computer and communications systems could
      reduce our ability to provide our revenue-generating services and could harm
      our
      business and reputation.*




The
      success of our on-demand web collaboration services depends on the efficient
      and
      uninterrupted operation of our internal and outsourced computer and
      communications hardware, software and services. Any system failure that causes
      an interruption in our web collaboration services, or a decrease in their
      performance, could harm our relationships with our customers and resellers.
      In
      addition, some of our communications hardware and software are hosted at
      third-party co-location facilities, and we rely as well on the functional
      operation of connectivity infrastructure such as fiber provided by third-party
      service providers. These systems and operations, including those of our
      third-party service providers, are vulnerable to damage or interruption from
      human error, telecommunications failures, physical or remote break-ins, physical
      damage to fiber lines or other third-party service provider infrastructure,
      sabotage, computer viruses and intentional acts of vandalism. In addition,
      third-party co-location facilities may discontinue their operations due to
      poor
      business performance. Because a substantial part of our central computer and
      communications hardware and network operations are located in the San Francisco
      Bay Area, an earthquake or other natural disaster, or a loss of electrical
      power
      to our Bay Area computer and communications hardware and network operations
      for
      a sustained period of time, could impair the performance of our entire network.
      In the event of damage to or interruption of our internal or outsourced systems,
      if we are unable to implement our disaster recovery plans or our efforts to
      restore our services to normal levels in a timely manner are not successful,
      our
      business would be harmed. In addition, business interruption insurance may
      not
      adequately compensate us for losses that may occur, which would harm our
      business.







*We
      might have liability for content or information transmitted through our
      services.*




Claims
      may be asserted against us for defamation, negligence, copyright, patent or
      trademark infringement and other legal theories based on the nature and content
      of the materials transmitted through our web collaboration services. Defending
      against such claims could be expensive, could be time-consuming and could divert
      management’s attention away from running our business. In addition, any
      imposition of liability could harm our reputation, could harm our business
      and
      operating results, or could result in the imposition of criminal penalties.







*Our
      success depends upon the patent protection of our software and technology.*




Our
      success and ability to compete depend to a significant degree upon the
      protection of our underlying software and our proprietary technology through
      patents. We regard the effective protection of patentable inventions as
      important to our future opportunities. We currently have 25 issued patents.
      Our
      patents are in several areas including peer-to-peer connections to facilitate
      conferencing, document annotation, optimizing data transfer, graphical user
      interface for extracting video presentations, and remote collaboration systems
      involving multiple computers. We currently have over 65 patent applications
      pending in the United States Patent Office. We may seek additional patents
      in
      the future. Our current patent applications cover different aspects of the
      technology used to deliver our services and are important to our ability to
      compete. However, it is possible that:







-
            any
                patents acquired by or issued to us may not be broad enough to protect
                us;




-
            any
                issued patent could be successfully challenged by one or more third
                parties, which could result in our loss of the right to prevent others
                from exploiting the inventions claimed in those patents and subjecting
                us
                to claims for seeking to enforce such patents;




-
            current
                and future competitors may independently develop similar technology,
                duplicate our services or design around any of our patents;




-
            our
                pending patent applications may not result in the issuance of patents;
                and




-
            effective
                patent protection, including effective legal-enforcement mechanisms
                against those who violate our patent-related assets, may not be available
                in every country in which we do business.







*We
      also rely upon trademarks, copyrights and trade secrets to protect our
      technology, which may not be sufficient to protect our intellectual property.*




We
      also
      rely on a combination of laws, such as copyright, trademark and trade secret
      laws, and contractual restrictions such as confidentiality agreements and
      licenses, to establish and protect our technology. Also, our software is
      automatically protected by copyright law. These forms of intellectual property
      protection are critically important to our ability to establish and maintain
      our
      competitive position. However,




-
            third
                parties may infringe or misappropriate our trademarks such as our
                registered Meeting Center trademark which is currently being used
                by at
                least one competitor that believes our trademark to be invalid, and
                may
                also infringe our copyrights and similar proprietary rights;




-
            laws
                and contractual restrictions, particularly those existing within
                or
                applied within non-U.S. jurisdictions such as China, may not be sufficient
                to prevent misappropriation of our technology or to deter others
                from
                developing similar technologies;




-
            effective
                trademark, copyright and trade secret protection, including effective
                legal-enforcement mechanisms against those who violate our trademark,
                copyright or trade secret assets, may be unavailable or limited in
                foreign
                countries;




-
            other
                companies may claim common law trademark rights based upon state
                or
                foreign laws that precede the federal registration of our marks;
                and




-
            policing
                unauthorized use of our services and trademarks is difficult, expensive
                and time-consuming, and we may be unable to determine the extent
                of any
                unauthorized use.





Reverse
      engineering, unauthorized copying or other misappropriation of our proprietary
      technology could enable third parties to benefit from our technology without
      paying us for it, which would significantly harm our business.







*We
      may face intellectual property infringement claims that could be costly to
      defend and result in our loss of significant rights.*




We
      may be
      subject to legal proceedings and claims, including claims of alleged
      infringement of the copyrights, trademarks and patents of third parties. Our
      services may infringe issued patents. The holders of such patents could initiate
      infringement claims against us. Also, in response to an infringement action
      brought by us, the defendant in such action could file counterclaims against
      us
      in the same proceeding or file a separate action against us in a different
      court. For example, in March 2006 a lawsuit was filed in U.S. federal district
      court by Automated Business Companies against a number of companies, including
      us, alleging that the defendants’ services infringe three of plaintiff’s
      patents.  Future
      intellectual property dispute proceedings such as the Automated Business
      Companies action can be expensive, time-consuming and may divert management
      attention and engineering resources from their other
      responsibilities.





In
      addition, we may be unaware of filed patent applications which have not yet
      been
      made public and which relate to our services. From time to time, we have
      received notices alleging that we infringe intellectual property rights of
      third
      parties. In such





cases,
      we
      investigate the relevant facts, respond to the allegations and, where the facts,
      applicable law, and other conditions warrant, consider settlement options.
      Intellectual property claims that may be asserted against us in the future
      could
      result in litigation. Intellectual property litigation is expensive and
      time-consuming and could divert management’s attention away from running our
      business. Intellectual property litigation could also require us to develop
      non-infringing technology or enter into royalty or license agreements. These
      royalty or license agreements, if required, may not be available on acceptable
      terms, if at all, in the event of a successful claim of infringement. Our
      failure or inability to develop non-infringing technology or license proprietary
      rights on a timely basis would harm our business .







*We
      may engage in future acquisitions or investments that could dilute the ownership
      of our existing stockholders, cause us to incur significant expenses, fail
      to
      complement our existing revenue models or harm our operating results.*




We
      may
      acquire or invest in complementary businesses, technologies or services. For
      example, in September 2005 we acquired Intranets, a company which provides
      web-based collaborative application services primarily to small businesses.
      We
      have changed the name of this subsidiary to WebExOne, Inc., and the various
      collaboration services are now marketed and sold under a new brand name we
      are
      utilizing called WebEx WebOffice. Operating and integrating newly-acquired
      businesses, employees, technologies or services may be expensive and
      time-consuming. We may be unable to operate any acquired businesses profitably,
      successfully integrate the employees, technology, products or services of any
      acquired businesses into our existing business, or achieve post-integration
      financial targets established for specific acquisitions. To illustrate, we
      could
      fail to successfully manage the newly-acquired WebExOne portion of our business,
      including such key areas as WebExOne sales activity, WebExOne employee
      motivation and retention including key WebExOne executives, and the WebExOne
      service delivery infrastructure. Also, we face possible future
      integration-related risks such as those associated with transferring the
      WebExOne billing and service delivery infrastructure from its current platform
      to our proprietary MediaTone platform. Expenses associated with, and diverted
      WebEx employee time and energy required in connection with, the integration
      of a
      newly-acquired business such as WebExOne could further harm our operating
      results. More generally, if we are unable to operate and integrate any newly
      acquired entities or technologies effectively, including those related to our
      acquisition of the former Intranets entity now renamed WebExOne, our operating
      results could suffer. Future acquisitions by us, or deterioration of the
      businesses we have acquired, could also result in large and immediate
      write-downs, or incurrence of debt and contingent liabilities, any of which
      would harm our financial performance .







*We
      must compete successfully in the web collaboration services market.*




The
      market for collaboration software and services is intensely competitive, subject
      to rapid change and is significantly affected by new product and service
      introductions and other market activities of industry participants. Although
      we
      do not currently compete against any one entity with respect to all aspects
      of
      our services, we do compete with various companies in regards to specific
      elements of our on-demand web collaboration services. For example, we compete
      with providers of traditional communications technologies such as
      teleconferencing and videoconferencing, application software and tools companies
      including online application services providers, and web conferencing products
      and services such as Adobe Systems, Cisco Systems, Citrix Systems, Genesys,
      IBM,
      Microsoft, Netviewer, NTR, Oracle, PC Visit and Saba.





In
      addition to the above competitors, certain of our resellers offer competitive
      web conferencing, web application and other web collaboration services. One
      of
      our key resellers, Intercall, is a subsidiary of West Corporation which in
      April
      2006 acquired our competitor Raindance. As a result of its acquisition of
      Raindance, Intercall could choose to increase its emphasis on offerings
      competitive with ours, or cease to offer some or all of our offerings, or both.





Other
      companies could choose to extend their products and services to include
      competitive interactive communication offerings in the future. Many of our
      current and potential competitors have longer operating histories, significantly
      greater financial, technical and other resources and greater name recognition
      than we do. Our current and future competitors may be able to respond more
      quickly to new or emerging technologies and changes in customer requirements.
      In
      addition, current and potential competitors have established, and may in the
      future establish, cooperative relationships with third parties and with each
      other to increase the availability of their products and services in the
      marketplace. Competitive pressures could reduce our market share or require
      us
      to reduce the price of our services, either of which could harm our business
      and
      operating results. For example, we offer VOIP to customers seeking that option
      for the audio portion of their web conferencing service activity, which puts
      us
      in competition with increasing numbers of low cost providers of VOIP products
      and services of ever-increasing quality. One or more of these competitors may
      offer a sufficiently low-cost, feature-attractive, audio-centric VOIP offering
      that, though not a web conferencing offering, might divert business away from
      us, or one or more of these competitors might themselves leverage their
      experience in the VOIP segment of web





communications
      to develop and market a web conferencing or web application product or service
      of their own. Finally, our revenues and market share could also be reduced
      if,
      during this time period where the market is still relatively new and competitors
      are still emerging, we do not capitalize on our current market leadership by
      timely developing and executing corporate strategies that will increase the
      likelihood that our services will be accepted as the market standard in
      preference to the offerings of our current and future competitors .







*Competition
      from Microsoft in the collaboration software and services markets, from other
      vendors specifically targeted at the low-end market, or customers offering
      customer-premises products may adversely affect our operating results.*




Competition
      from Microsoft in the collaboration software and services markets may adversely
      affect us. Microsoft since 2003 has had a product offering which is competitive
      with ours and which is called Microsoft Office Live Meeting. Microsoft in March
      2005 announced the certain improvements to the Live Meeting service and other
      product developments. In 2005, Microsoft acquired collaboration software
      provider Groove Networks. Subsequent to this acquisition, Microsoft announced
      its new Office Live offering, which it described as a set of Internet-based
      software services. Microsoft is currently offering a free “beta”, or
      pre-commercial release, version of Office Live. Microsoft’s investment of
      development and marketing resources in products or services that compete
      directly with us and Microsoft’s integration of competitive technologies from
      other companies, including Groove Networks and Placeware, may have an adverse
      impact on our business. More generally, Microsoft may attempt to leverage its
      dominant market position in the operating system, productivity application
      or
      browser markets, through technical integration or bundled offerings, to expand
      further its presence in these web collaboration markets. This expanded Microsoft
      presence in web collaboration markets could make it difficult for other vendors
      of web collaboration products and services, such as WebEx, to compete.





In
      addition, some competitors offer web collaboration products and services
      targeted at customers who are more price-conscious and are less concerned about
      functionality, scalability, integration and security features. Such offerings
      may make it more difficult for us to compete in that segment of the market
      and
      may cause some of our existing customers to switch to these competitors. In
      2005, we introduced new services with lower entry prices that enable us to
      compete more effectively with such offerings. If our industry were to experience
      a general decline in prices and there were not a sufficient increase in volume
      to compensate for the price reductions, we might be forced to change the extent
      and type of resources we deploy in the selling of our services in an effort
      to
      maintain operating margins. Such forced price reductions, as well as costs
      or
      lost sales associated with a transitioning to different sales practices, could
      have a negative effect on our operating results.





Finally,
      some of our competitors such as IBM and Cisco Systems offer software products
      or
      products that are a combination of software and hardware that include web
      collaborations functionality. This type of web collaboration offering, sometimes
      called a customer premise or on-premise solution, allows customers to purchase
      such products, install them at their own facilities, and manage the products
      by
      themselves. If significant numbers of existing or potential customers determine
      that they would prefer to have their basic web conferencing or more advanced
      web
      collaboration needs met with these types of products, demand for WebEx services
      may decrease.







*Our
      future success depends on the broad market adoption and acceptance of web
      collaboration services.*




The
      market for web collaboration services is relatively new and rapidly evolving.
      Growth in market demand for collaboration services over the Web is uncertain.
      If
      the market for web collaboration services does not continue to grow, our
      business and operating results will be harmed. Factors that might influence
      broad market acceptance of our services include the following, all of which
      are
      beyond our control:




-
            willingness
                of businesses and end-users to use web collaboration services;




-
            the
                continued growth and viability of the Web as an instrument of commerce;




-
            the
                willingness of our resellers to integrate web collaboration services
                in
                their service offerings; and




-
            the
                ongoing level of security and reliability for conducting business
                over the
                Web.







*We
      face risks associated with government regulation of the Internet, and related
      legal uncertainties.*







Currently,
      a relatively small number of existing laws or regulations specifically apply
      to
      the Internet, other than laws generally applicable to businesses. Many
      Internet-related laws and regulations, however, are pending and may be adopted
      in the United States, in individual states, in local jurisdictions, and in
      other
      countries. These laws may relate to many areas that impact our business,
      including encryption, network and information security, the convergence of
      traditional communication services, such as telephone services, with Internet
      communications, taxes and wireless networks. For example, media reports have
      surfaced from time to time concerning possible future regulation, and perhaps
      also taxation, of VOIP products and services similar to the manner in which
      current telephony services are currently regulated and taxed. These types of
      regulations could differ between countries and other political and geographic
      divisions both inside and outside the United States. Non-U.S. countries and
      political organizations may impose, or favor, more and different regulation
      than
      that which has been proposed in the United States, thus furthering the
      complexity of regulation. In addition, state and local governments within the
      United States may impose regulations in addition to, inconsistent with, or
      stricter than federal regulations. The adoption of such laws or regulations,
      and
      uncertainties associated with their validity, interpretation, applicability
      and
      enforcement, may affect the available distribution channels for, and the costs
      associated with, our products and services. The adoption of such laws and
      regulations may harm our business.





In
      addition to the effect of such potential future laws and regulations, existing
      laws and regulations in both domestic and non-U.S. jurisdictions could be
      interpreted to apply to our web collaboration business, in which case our
      regulatory compliance obligations and associated financial burdens could
      increase. An example of a non-U.S. law or regulation that we are expending
      resources, both infrastructure-related and legal-related, to comply with are
      the
      various privacy statutes enacted by the European Union. Examples of U.S. laws
      and regulations that we may have to expend greater resources to comply with
      are
      various U.S. state sales tax laws and regulations that may be held by the
      applicable authorities to apply to the sale of our web collaboration services. We
      do not
      currently collect sales tax from customers in the United States, except in
      two
      states.  An example of increasing state regulatory attention to the sales
      and use tax area is that two states and one city have commenced or indicated
      that they intend to commence an audit of us in connection with potential sales
      and/or use tax liability. In April 2006 the city sent us a notice of assessment
      concerning use tax. In the future, federal tax authorities or the tax
      authorities in one or more states could assert that we are obligated to collect
      such taxes from our customers and remit those taxes to those authorities. 
The collection and remittance of such taxes could increase the cost of our
      services and harm our operating results. In addition, such authorities may
      seek
      to collect sales taxes for sales of services by us that occurred in the
      past.  If such a claim were to be asserted against us and if we were unable
      to collect such taxes from our customers, we may be required to pay such back
      taxes and any associated interest and penalties, which would increase our costs
      and harm our operating results .







*Current
      and future economic and political conditions may adversely affect our business.*




Current
      economic and political conditions, including the effects of the war in Iraq,
      uncertainty about Iraq’s political future, continuing tensions throughout the
      Middle East and the supply and price of petroleum products continue to impact
      the U.S. and global economy, and any negative development in one of these
      geopolitical areas could cause significant worldwide economic harm. The
      sustained price of petroleum products at or above present levels may negatively
      impact the U.S. and world economies generally, which in turn could hurt our
      business. Any significant downturn in the U.S. economy, whether due to the
      effect of increasing interest rates or otherwise, could cause existing or
      potential customers to decide not to purchase our services, which in turn would
      hurt our business. To the extent that changes in laws, regulations or taxes
      in
      the U.S. diminish the economic benefits of arrangements by U.S. companies with
      non-U.S. subsidiaries or suppliers, our business would be adversely affected.
      As
      with our operations in China, our operations in India could be significantly
      disrupted if U.S. relations with India deteriorate, or if India becomes involved
      in armed conflict or otherwise becomes politically destabilized. Moreover,
      depending on severity, a significant terrorist attack anywhere in the world
      and
      particularly one within the United States could have a significantly negative
      effect on both the domestic and global economies. If economic conditions worsen
      as a result of economic, political or social turmoil or military conflict,
      or if
      there are further terrorist attacks in the United States or elsewhere, our
      customers may not be able to pay for our services and our resellers may cease
      operations, which may harm our operating results.






*We
      face risks associated with potential future zoning activity relating to our
      Mountain View network operations center property.*





We
      own
      real property in Mountain View, California on which resides a building that
      serves as one of our primary network operations center facilities. The Mountain
      View City Council is currently considering a proposal to rezone the area
      surrounding our facility from industrial to residential use. If such rezoning,
      and the accompanying expansion of neighboring residential development, takes
      place, operations in our building could be impeded, interrupted or otherwise
      negatively affected by construction activities, the





new
      residents, or city ordinances relating to noise or other byproducts of our
      building’s operations. Because of such negative circumstances, we might be
      forced to re-locate to a less suitable and perhaps more expensive site for
      our
      network operations facility, which would negatively affect our business. Having
      to invest additional resources and management time in the locating and fitting
      of the alternative network operations site would further hurt our business.







*New* *Financial
      Accounting Standards Board (FASB) rules relating to equity-compensation
      programs, changes we are making in our equity compensation programs in response
      to the new rules,* *will
      significantly affect our results of operations* *.*




The
      Financial Accounting Standards Board (FASB) has adopted final rules which change
      the way companies account for equity compensation in their financial statements.
      This accounting rule change requires companies to report as a compensation
      expense equity compensation provided to employees, including stock options,
      purchases of stock at a discount pursuant to an employee stock purchase plan,
      and other forms of equity compensation. The new accounting rule has had a
      negative effect on our reported net income, due to our past extensive use of
      stock option and employee stock purchase plan awards, and also affects our
      reported amounts for pre-tax expense, tax rate, cash flow from operations and
      diluted shares outstanding.





The
      new
      FASB rule has added, and we believe will continue to add, complexity and
      uncertainty to our management of employee compensation practices, and for the
      foreseeable future will continue to demand a significant amount of management
      attention. On the one hand, if our policy of reduced equity compensation, or
      our
      plan to switch to alternative forms of equity compensation, are objected to
      by
      sufficient percentages of existing or potential future employees, either (i)
      we
      may be forced to increase cash compensation to make up for such reduced and
      modified stock-based compensation opportunities, which would increase our
      expenses, or (ii) we risk losing, or being unable to recruit, key personnel
      because our new equity compensation packages may not be deemed competitive
      in
      the technology company labor marketplace, which would hurt our business. In
      particular, the equity compensation packages offered by private companies—that
      is, companies whose securities are not publicly traded—could look appreciably
      more attractive to current or potential employees if we reduce our equity
      compensation packages too much. On the other hand, if in implementing these
      new
      equity issuance practices we are too liberal in the amount of equity
      compensation that we grant through new forms of equity instruments, whether
      because of the demands of the technology labor market, miscalculation of the
      effects of the new forms of equity grants on our compensation expense or
      otherwise, our compensation expense will increase appreciably and our results
      of
      operations may be further negatively affected . ******







*While
      we believe that we currently have adequate internal controls over financial
      reporting, we are exposed to risks and increased expense from recent legislation
      requiring companies to evaluate those internal controls* *.*




Section
      404 of the Sarbanes-Oxley Act of 2002 requires our management to report on,
      and
      our independent auditors to attest to, the effectiveness of our internal control
      structure and procedures for financial reporting. We completed an evaluation
      of
      the effectiveness of our internal controls for the fiscal year ended December
      31, 2005, and we have an ongoing program to perform the system and process
      evaluation and testing supporting our legal obligation to comply with these
      requirements. Our business continues to expand in size and complexity, and
      accordingly in 2006 we expect to incur increased expense, relative to our
      expenditures in 2005, and to devote additional management resources to comply
      with Section 404. Any additional acquisitions we may pursue and complete will
      increase our Section 404-related expenses, compliance activities and resource
      allocation. In the event that our chief executive officer, chief financial
      officer or independent registered public accounting firm determine that our
      internal controls over financial reporting are not effective as defined under
      Section 404, investor perceptions of our company may be adversely affected
      and
      could cause a decline in the market price of our stock, and we could experience
      further increases in expenses and redirection of management resources in order
      to remedy such ineffective internal controls .







*Our
      stock price has been and will likely continue to be volatile because of stock
      market fluctuations that affect the prices of technology stocks. A decline
      in
      our stock price could result in securities class action litigation against
      us
      that could divert management’s attention and harm our business.*




Our
      stock
      price has been and is likely to continue to be highly volatile. For example,
      between April 1, 2006 and August 1, 2006, our stock price has traded as high
      as
      $36.04 on May 1, 2006, and as low as $28.68 on June 14, 2006. Our stock price
      could fluctuate significantly due to a number of factors, including:




-
            variations
                in our actual or anticipated operating results;







-
            sales
                of substantial amounts of our stock;




-
            announcements
                by or about us or our competitors, including technological innovation,
                new
                products, services or acquisitions;




-
            litigation
                and other developments relating to our patents or other proprietary
                rights
                or those of our competitors;




-
            conditions
                in the Internet industry;




-
            changes
                in laws, regulations, rules or standards by governments, regulatory
                bodies, exchanges or standards bodies; and




-
            changes
                in securities analysts’ estimates of our performance, or our failure to
                meet analysts’ expectations.






Many
      of
      these factors are beyond our control. In addition, the stock markets in general,
      and the Nasdaq National Market and the market for Internet technology companies
      in particular, continue to experience significant price and volume fluctuations.
      These fluctuations often have been unrelated or disproportionate to the
      operating performance of these companies. These broad market and industry
      factors may decrease the market price of our common stock, regardless of our
      actual operating performance. In the past, companies that have experienced
      volatility in the market prices of their stock have been the objects of
      securities class action litigation. If we were to be the object of securities
      class action litigation, we could face substantial costs and a diversion of
      management’s attention and resources, which could harm our business .








**Item
      2.** ***Unregistered
      Sales of Equity Securities and Use of Proceeds***





**(c)**  **Issuer
      Purchases of Equity Securities.**





The
      WebEx
      Board of Directors in November, 2005 approved a share repurchase program,
      effective January 1, 2006, which authorized the repurchase of, at the discretion
      of WebEx management, up to $10,000,000 of the Company’s common stock through
      June 30, 2006. During the quarter ended June 30, 2006, we did not make any
      repurchases under this repurchase program, nor did we make any other repurchases
      of our equity securities. The repurchase program terminated on June 30, 2006.
      A
      new repurchase program was approved on July 31, 2006 authorizing the repurchase
      of, at the discretion of WebEx management, up to $40,000,000 of the Company’s
      common stock through December 31, 2007.








**Item
      4.** ***Submission
      of Matters to a Vote of Security Holders***





On
      May 9,
      2006, we held our annual stockholders’ meeting at our headquarters, 3979 Freedom
      Circle, Santa Clara, California 95054. At such meeting, the following actions
      were voted upon:





(a)  To
      elect
      the following individual to the board of directors to serve a three year term
      expiring at WebEx’s 2009


annual meeting of stockholders or until his successor has been elected and
      qualified:





Director    The
      Votes for such Director   The
      Votes Withheld from such Director


Subrah
      S.
      Iyar   39,174,682     827,960








Other
      directors whose term of office as a director continued after the annual meeting
      are the following: Alfred R. Berkeley III, Michael T. Flynn, Anthony R. Muller
      and Casimir Skrzypczak.








(b)  To
      ratify
      the appointment of KPMG LLP as WebEx’s independent public accountants for the
      period ending December
      31, 2006:





Votes
      For   Votes
      Against     Abstain


39,379,222   619,016      4,404








**Item
      6.** ***Exhibits***





**Exhibits:**





**Exhibit**
              **Number**
            **Description**3.1*
            Amended
                and Restated Certificate of Incorporation3.2**
            Amended
                and Restated Bylaws4.1*
            Form
                of Common Stock Certificate10.1#
            Registrant’s
                Amended and Restated 2000
                Stock Incentive Plan, and forms of agreements
                thereto31.1
            Certification
                of the Chief Executive Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial Officer Pursuant
                to Rule 13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 200232.2+
            Certification
                of Chief Financial Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 2002


__________





*  Incorporated
      by reference from Exhibits 3.3 and 4.1 of Amendment No. 1 to the Registrant's
      Registration Statement on Form S-1 (File No. 333-33716) filed with the
      Securities and Exchange Commission on June 21, 2000.





**  Incorporated
      by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K (File
      No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
      Securities and Exchange Commission on April 2, 2001.





#  Denotes
      a
      management contract or compensatory plan or arrangement.





+  The
      certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
      purpose of Section 18 of the Exchange Act and are not to be incorporated by
      reference into any filing of the Company under the Securities Act of 1933 or
      the
      Securities Exchange Act of 1934, whether made before or after the date hereof
      irrespective of any general incorporation language contained in any such filing,
      except to the extent that the registrant specifically incorporates it by
      reference.





























**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




WEBEX
              COMMUNICATIONS, INC.Date: August
              8, 2006
            By:
            /s/ Michael
              T. EverettMichael
              T. Everett*Chief
                Financial Officer*
              (Duly
                Authorized Officer and Principal Financial Officer)


WEBEX
              COMMUNICATIONS, INC.Date: August
              8, 2006
            By:
            /s/ Kelly
              SteckelbergKelly
              Steckelberg*Vice
                  President, Finance and Controller*
                (Duly
                    Authorized Officer and Principal Accounting
                    Officer)**








**EXHIBIT
      INDEX**


**Exhibit**
              **Number**
            **Description**3.1*
            Amended
                and Restated Certificate of Incorporation3.2**
            Amended
                and Restated Bylaws4.1*
            Form
                of Common Stock Certificate10.1#
            Registrant’s
                Amended and Restated 2000
                Stock Incentive Plan, and forms of agreements
                thereto31.1
            Certification
                of the Chief Executive Officer
                Pursuant to Rule 13a-14(a)/15d-14(a)31.2
            Certification
                of the Chief Financial Officer Pursuant
                to Rule 13a-14(a)/15d-14(a)32.1+
            Certification
                of Chief Executive Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 200232.2+
            Certification
                of Chief Financial Officer
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section
                906 of
                The Sarbanes-Oxley Act of 2002


__________





*  Incorporated
      by reference from Exhibits 3.3 and 4.1 of Amendment No. 1 to the Registrant's
      Registration Statement on Form S-1 (File No. 333-33716) filed with the
      Securities and Exchange Commission on September 21, 2000.





**  Incorporated
      by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K (File
      No. 0-30849) for the fiscal year ended December 31, 2000 filed with the
      Securities and Exchange Commission on April 2, 2001.





#  Denotes
      a
      management contract or compensatory plan or arrangement.





+  The
      certifications filed as Exhibits 32.1 and 32.2 are not deemed “filed” for
      purpose of Section 18 of the Exchange Act and are not to be incorporated by
      reference into any filing of the Company under the Securities Act of 1933 or
      the
      Securities Exchange Act of 1934, whether made before or after the date hereof
      irrespective of any general incorporation language contained in any such filing,
      except to the extent that the registrant specifically incorporates it by
      reference.